In a press conference last Thursday morning, CBO director Doug Elmendorf reviewed the updated budget and economic outlook forecast. Here’s what you need to know about the news.

CBO

    • There’s some good news in the short term.

      • Deficits are continuing to fall and will do so until 2015. This year’s deficit is $506 billion, about $170 billion lower than 2013, and only 2.9 percent of GDP. The deficit will remain less than 3% of GDP until 2015.

 

  • After 2015, the economy will struggle and deficits will skyrocket.
    • Large-scale overseas operations are beginning to draw down, and Defense spending will shrink some. So will Non-Defense Discretionary spending and non-healthcare mandatory spending. But overall, spending will skyrocket because of Social Security, Medicare, Medicaid, costs on healthcare exchanges, and interest on the debt.

    • Federal debt held by the public will reach 74% of our entire economic output (GDP) by the end of 2014; it will reach 100% of GDP in 25 years. According to Elmendorf  in yesterday’s press conference,  this level of debt could have severe economic consequences including hiked interest payments, hampered growth, and an eventual fiscal crisis.

     

  • Reducing spending is crucial to solving this problem.
    • At least in the short term, revenues will rise too. But they will be far outpaced by spending growth, and no level of taxation could make up for such massive shortfalls.

    • Reducing spending is a critical element of solving this problem. Politicians on both sides have to make tough choices now instead of having a far more difficult situation forced on everyone not very many years down the road.