Saturday, July 17, 2010

Health Care And The Long-Term Budget Outlook

Happy thoughts for your weekend barbecue.

As many readers will be aware, on June 30, the Congressional Budget Office put out its 2010 Long-Term Budget Outlook. This year’s LTBO is notable because it incorporates the CBO’s view of the impact of Obamacare on the long-term fiscal situation. The CBO provides two sets of projections: an “extended-baseline scenario” which contains unrealistic assumptions about the willingness of Congress to rein in spending and raise taxes; and a more realistic “alternative fiscal scenario” that assumes that the Medicare Sustainable Growth Rate (a.k.a. the “doc fix”) continues to get patched, and that tax revenues hold steady at 19% of GDP. Here is how the spending looks:

As you can see, if you exclude government spending on health care (the top area of the graph), federal spending actually goes down over time as a percentage of GDP. In other words, the entire fiscal crisis is being caused by health care spending.

But wait, there’s more, because the above chart doesn’t include interest payments on the debt. When you include interest, the chart looks like this:

In 2055, based on these projections, when today’s college students are getting ready to retire, interest on the debt will be 19.8% of GDP, whereas tax revenues will be 19.3% of GDP. In other words, every dollar spent by the government in 2055 will be borrowed from someone else. In 2055, according to these projections, federal debt will be 410% of GDP.

Enjoy your weekend!

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