The media reporting about the Congressional Budget Office’s latest “Budget and Economic Outlook” has been, in a word: maddening.
Nearly every mainstream source of information cherry picked the report to argue that the budget deficit was falling swiftly.
“Solid economic growth will help the federal budget deficit shrink this year to its lowest level since President Barack Obama took office,” the Associated Press reported.
“Lower government spending and the improving economy are driving down the annual deficit, the CBO reported, with the shortfall for the year projected to be 2.6 percent of gross domestic product, the lowest level since 2007,” Rebecca Shabad wrote for The Hill.
“The federal budget deficit will fall in 2015, the sixth consecutive year of decreases relative to the overall economy, according to new figures by the Congressional Budget Office,” Bill Chappell wrote for NPR. “The estimate for 2015 stands at $468 billion, a modest improvement on the 2014 budget deficit of $483 billion.”
The list could go on ad infinitum. But by focusing solely on the falling deficit this year the media missed the real story splashed across the pages of the CBO report – that over the next decade deficits will begin to soar out of control.
“The deficit in 2025 is projected to be $1.1. trillion, or 4.0 percent of GDP, and cumulative deficits over the 2016-2025 period are projected to total $7.6 trillion,” the CBO explains on the first page of its report.
Although the reporting chose to focus on the one year blip in deficits, creating the impression that we are on a path toward budget sustainability, the CBO argues the exact opposite.
“When CBO last issued long-term budget projections, it project that, under current law, debt would exceed 100 percent of GDP 25 years from now and would continue on an upward trajectory thereafter—a trend that could not be sustained,” writes the CBO.
Unlike recent years where the spiking deficits could be blamed on one-time increases in spending, the CBO report shows that our long-term debt problems can be blamed on a badly broken entitlement system.
“The aging of the population, the rising costs of health care, and the expansion in federal subsidies for health insurance that is now under way will substantially boost federal spending on Social Security and the governments major health care programs relative to GDP,” the report says.
That means that Social Security spending will rise from 4.9 to 5.7 percent of GDP over the next decade, Medicare and Medicaid will soar from 5.3 to 6.2 percent, and net interest spending will double from 1.5 to 3 percent. In total, federal spending will go from 20.3 to 22.3 percent of GDP while revenues are projected to stay flat, at around 18 percent of GDP.
That gap, the CBO warns, is “unsustainable” and would lead to a raft of consequences, ranging from higher interest rates, to lower national savings rates, to an increased risk of fiscal crisis, to a smaller national economy. In other words, bad things, arguably catastrophic things will happen if we maintain our current course.
Despite all that, the media opts to report on this year’s $468 billion deficit, which is small by Obama standards, but still huge by historic standards. That’s disappointing now, but unless everyone begins to understand the importance of painting a realistic picture of our national finances, it will be disastrous later. We have a spending problem. More precisely, we have an entitlement spending problem. The quicker we admit it, the quicker we can fix it.