Director Doug Elmendorf's presentation to the National Association for Business Economics

1. Congressional Budget Office
The Budget Outlook
Presentation to the National Association for Business Economics
Douglas W. Elmendorf
Director
March 4, 2013

2. Topics to Cover
 The Budget Outlook
 Consequences of High and Rising Federal Debt
 Criteria for Evaluating Possible Courses of Action
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3. How Big Are Projected Federal Deficits
and Debt?
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4. Total Federal Deficits or Surpluses
(Percentage of GDP)
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013).
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5. Total Federal Revenues and Outlays
(Percentage of GDP)
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013).
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6. Projected Growth in Major Federal Spending Categories
(Percentage of GDP)
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013).
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7. Federal Debt Held by the Public
(Percentage of GDP)
Actual Projected
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013).
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8. What Are the Consequences of High
and Rising Federal Debt?
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9. High and Rising Debt Relative to the Size of the Economy
Is A Significant Concern for Several Reasons
 First: Crowding out of capital investment will be
greater.
 Second: Lawmakers will have less flexibility to
respond to unexpected challenges.
 Third: There will be a heightened risk of a fiscal
crisis.
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10. Fourth: Debt Would Be Even Larger If…
…Current laws were modified to delay or undo certain
scheduled changes in policy.
For example, if lawmakers:
 Eliminated the automatic spending cuts that have just taken
effect;
 Extended all of the tax provisions that are scheduled to expire;
 Prevented the reduction in Medicare’s payment rates for
physicians scheduled for next January; and
 Made no other policy changes with offsetting budget effects...
Then, debt would rise to 87 percent of GDP by 2023.
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11. Fifth: Original Caps on Discretionary Funding Are Very
Low Relative to GDP
(Percentage of GDP)
7 Actual Projected
6 Defense
Spending
5
4
3 Nondefense
Spending
2
1
0
1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013). Estimates incorporate the
assumption that the automatic spending reductions required by the Budget Control Act do not take effect, although the
original caps on discretionary appropriations remain in place and are met through proportional reductions in defense and
nondefense budget authority.
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12. Sixth: 10-Year Projections Do Not Fully Reflect Long-Term
Budget Pressures
Health
(Percentage of GDP)
15 Actual Projected
10
Medicaid and Other
5
Medicare
0
2000 2005 2010 2015 2020 2025 2030 2035
Social Security
15
10
5
0
2000 2005 2010 2015 2020 2025 2030 2035
Estimates from The 2012 Long-Term Budget Outlook (June 2012).
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13. What Are Some Criteria for Evaluating
Proposed Policy Changes?
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14. Criterion #1: How Much Would Debt Be Reduced?
The more that debt is reduced, the more that the
harms caused by high debt would be avoided—but
also the greater the loss of government benefits
and services or the burdens on individuals and
businesses of higher taxes.
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15. Debt Held by the Public Under Current Law and
Alternative Budgetary Paths
(Percentage of GDP)
90
$2 Trillion Increase in
Primary Deficits
80 CBO's Baseline
(Current law)
$2 Trillion Reduction in
70 Primary Deficits
60
$4 Trillion Reduction in
Primary Deficits
50
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Estimates from Macroeconomic Effects of Alternative Budgetary Paths (February 2013).
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16. Criterion #2: How Quickly Would Debt Be Reduced?
The sooner deficits are cut, the less debt that will
be accumulated—but also the greater the drag on
economic activity over the next few years. Indeed,
several provisions of current law that are bringing
down the deficit will weaken output and
employment this year.
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17. Unemployment Rate
(Percent)
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013).
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18. Criterion 3: How Would the Government’s Resources Be
Allocated?
(Percentage of GDP)
Estimates from The Budget and Economic Outlook: Fiscal Years 2013 to 2023 (February 2013).
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19. Criterion #4: How Would Policy Changes Affect Longer-
Term Economic Performance?
Possible effects of:
 Raising marginal tax rates on labor;
 Raising marginal tax rates on capital;
 Cutting government benefits; and
 Reducing government investment.
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20. Criterion #5: Who Would Bear the Burden of Policy
Changes?
Possible effects on:
 Distribution of burden among people at
different income levels;
 Distribution of burden among people with
similar income but other differences; and
 Distribution of burden among people in
different generations.
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21. Key Implication of CBO’s Budget Projections
Putting the debt on a sustainable path will
ultimately require increases in taxes or cuts in
government benefits or services for people who
consider themselves to be in the middle class.
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