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Testimony on the 2012 Long-Term Budget Outlook 1 (June 6, 2012)

handle is hein.congrec/cbo10730 and id is 1 raw text is: THE 2012 LONG-TERM BUDGET OUTLOOK I Chairman Ryan, Congressman Van Hollen, and Mem- bers of the Committee, thank you for inviting me to testify on the Congressional Budget Office's (CBO's) most recent analysis of the long-term outlook for the budget and the economy. My statement summarizes the report The 2012 Long-Term Budget Outlook, which CBO released yesterday. In the past few years, the federal government has been recording the largest budget deficits since 1945, both in dollar terms and as a share of the economy. Consequently, the amount of federal debt held by the public has surged. At the end of 2008, that debt equaled 40 percent of the nation's annual economic output (gross domestic prod- uct, or GDP)-a little above the 40-year average of 38 percent. Since then, the figure has shot upward: By the end of this year, CBO projects, federal debt will exceed 70 percent of GDP-the highest percentage since shortly after World War II. The sharp rise in debt stems partly from lower tax revenues and higher federal spend- ing caused by the severe economic downturn and from policies enacted during the past few years. However, the growing debt also reflects an imbalance between spending and revenues that predated the recession. Whether that debt will continue to grow in coming decades will be affected not only by long-term demo- graphic and economic trends but also by policymakers' decisions about taxes and spending. The aging of the baby-boom generation portends a significant and sus- tained increase in the share of the population receiving benefits from Social Security and Medicare, as well as long-term care services financed by Medicaid. Moreover, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services for many years (although the magnitude of that gap is uncertain). Without significant changes in govern- ment policy, those factors will boost federal outlays rela- tive to GDP well above their average of the past several decades-a conclusion that holds under any plausible assumptions about future trends in demographics, eco- nomic conditions, and health care costs. According to CBO's projections, if current laws remained in place, spending on the major federal health care programs alone would grow from more than 5 percent of GDP today to almost 10 percent in 2037 and would con- tinue to increase thereafter.' Spending on Social Security is projected to rise much less sharply, from 5 percent of GDP today to more than 6 percent in 2030 and subse- quent decades. Altogether, the aging of the population and the rising cost of health care would cause spending on the major health care programs and Social Security to grow from more than 10 percent of GDP today to almost 16 percent of GDP 25 years from now. That combined increase of more than 5 percentage points for such spending as a share of the economy is equivalent to about $850 billion today. (By comparison, spending on all of the federal government's programs and activities, excluding net outlays for interest, has averaged about 18.5 percent of GDP over the past 40 years.) If law- makers continued certain policies that have been in place for a number of years or modified some provisions of current law that might be difficult to sustain for a long period, the increase in spending on health care programs and Social Security would be even larger. Absent substan- tial increases in federal revenues, such growth in outlays would result in greater debt burdens than the United States has ever experienced. Long-Term Scenarios In this report, CBO presents the long-term budget outlook under two scenarios that embody different assumptions about future policies governing federal revenues and spending: * The extended baseline scenario, which reflects the assumption that current laws generally remain unchanged; that assumption implies that lawmakers will allow changes that are scheduled under current law to occur, forgoing adjustments routinely made in the past that have boosted deficits. 1. The major health care programs consist of Medicare, Medicaid, the Children's Health Insurance Program, and health insurance subsidies that will be provided through the exchanges created by the Affordable Care Act, which comprises the Patient Protection and Affordable Care Act (Public Law 111-148) and the health care provisions of the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152). TESTIMONY

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