us congressional budget office (cbo) presentation: federal budget math

8/6/2019 US Congressional Budget Office (CBO) Presentation: Federal Budget Math

1/16

Congressional Budget Office

Presentation at the

Federal Reserve Bank of New York

Federal Bud et Math:

We Cant Repeat the Past

June 16, 2011Douglas W. Elmendorf

Director


2/16

Total Federal Deficits and Surpluses

-2

0

2

4

-2

0

2

4

Actual Projected

Baseline

Percentage of GDP

2

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021

-12

-10

-8

-6

-4

-12

-10

-8

-6

-4

Continuation of

Certain Policies


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Federal Debt Held by the Public

80

100

120

80

100

120Actual Projected

Continuation

of Certain

Policies

Percentage of GDP

3

1940 1949 1958 1967 1976 1985 1994 2003 2012 2021

0

20

40

60

0

20

40

60

ase ne


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Key Aspects of Federal Budget Policy during the

Past 40 Years

Revenues have averaged about 18 percent of GDP, with

substantial variation around that level but no trend.

Older Americans have received:

Cash payments that have risen with average wages (throughSocial Security),

4

Health insurance with a significant defined-benefit subsidy(through Medicare), and

Additional subsidies for health insurance and subsidized long-term care (through Medicaid) for many of those with very high

medical costs or little income and assets.

Defense spending has trended down relative to GDP.

Outlays for all other federal programs have shown substantial

variation relative to GDP and a slight downward trend.


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Total Federal Revenues

Percentage of GDP

20

22

24

20

22

24Actual Baseline Projection

5

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021

0

14

16

18

0

14

16

18

Average Revenues,

1971 to 2010


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Average Federal Tax Rates by Quintile

20

25

30

Highest Quintile

Fourth Quintile

Percent

6

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

0

5

10

15

Middle Quintile

Second Quintile

Lowest Quintile


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Outlays for Social Security and Major Health Care

Programs

Percentage of GDP

4

5

6

Social Security

Actual Baseline Projection

7

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021

0

1

2

3

Medicare

Medicaid, CHIP, and Exchange Subsidies


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Other Components of Federal Spending

Percentage of GDP

5

6

7

8

DefenseDiscretionary

Actual Baseline Projection

8

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021

0

1

2

3

4

Mandatory Spending Other ThanSocial Security, Medicare, Medicaid,

CHIP, and Exchange Subsidies

Non-Defense

Discretionary


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Federal Employees

Millions Percent

5

6

7

8

8

10

12

Number of

Federal Employees

(left axis)

9

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

0

1

2

3

4

0

2

4

6

Federal Employees as a

Share of the Total Workforce

(right axis)


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Shares of Federal Spending in 2010

Percent

Transfer payments to people in the United States 47

10

ran s o s a e an oca governmen s

Purchases of goods and services for defense 19

Purchases of goods and services for nondefense 9

Interest 8

Other (includes transfers to people outside the U.S.) 4

Source: National Income and Product Accounts.


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Trends in Federal Spending during the Past 40 Years

The costs of Social Security, Medicare, Medicaid, and

the Childrens Health Insurance Program have risensubstantially relative to GDP, from 4.3 percent in 1971to 8.7 percent in 2007 (before the recession).

11

Defense spending has fallen substantially relative toGDP, from 7.3 percent in 1971 to 3.9 percent in 2007.


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We Cannot Repeat the Past in the Federal Budget

Given the aging of the population and the rising cost of

health care, the United States cannot achieve all of the

following objectives in the future:

Keep federal revenues at their average share of GDP

12

ur ng e pas years.

Provide the same sorts of benefits for older

Americans that we have provided in the past 40years.

Operate the rest of the federal government in line withits role in the economy and society during the past 40

years.


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Components of the Federal Budget

(percentage of GDP)

1971-2010Average

2021March

BaselineProjection

2021Presidents

BudgetEstimate

2022Ryan

ProposalEstimate

Revenues 18.0 20.8 19.3 18 1/2

13

Outlays 20.8 23.9 24.2 20 1/4

Noninterest outlays 18.6 20.5 20.3 17

Interest 2.2 3.4 3.9 3 1/4

Deficit 2.8 3.1 4.9 2

Note: The Ryan proposal was estimated relative to an earlier baseline, so the figures are not precisely comparable to the latest baselineprojection or estimates for the Presidents budget.


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Noninterest Outlays (percentage of GDP)

1971-2010Average

2021March

BaselineProjection

2021Presidents

BudgetEstimate

2022Ryan

ProposalEstimate

Noninterest Outlays 18.6 20.5 20.3 17

Social Securit

14

Major health programs 2.9 6.9 7.1 5 1/2

Defense 4.8 3.6 3.1

}6

Other mandatory spendingand nondefense discretionaryspending

6.7 4.6 4.8

Note: Major health programs include Medicare, Medicaid, the Childrens Health Insurance Program, and exchange subsidies. The Ryan

proposal was estimated relative to an earlier baseline, so the figures are not precisely comparable to the latest baseline projection or estimatesfor the Presidents budget.


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Outlays for Major Programs Compared with Total

Revenues Under a Continuation of Certain Policies

Percentage of GDP

20

22

Outlays for Social Security,Major Health Programs,

Defense, and Net Interest

Actual Projected

152008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0

14

16

18Total Revenues


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The Choices Confronting Policymakers

The question is not whether to change current policies,

but when and in what ways.

There are trade-offs regarding the timing of implementingpolicy changes, but there are important benefits and few

16

apparent costs to deciding about those changes soon.

Fiscal policy cannot be put on a sustainable path just byeliminating waste and inefficiency; instead, changes will

need to significantly affect popular programs, peoplestax payments, or both.

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