The GAO just released an update to its long term projections about the health of the U.S. economy. The report indicates that the long term outlook is improved from its last analysis, but a structural imbalance still exists.
The GAO has published simulations of the economy since 1992. The model produces two projections, a baseline projection, and an alternative projection. In any projection, the assumptions of the analyst are key to understanding and evaluating the conclusions.
In the case of the baseline projection, the GAO follows the CBO’s baseline projections of August 2011 for the first 10 years, then projects most spending will maintain a constant relationship to GDP. Interest on the national debt, and Social Security, Medicare and Medicaid payments use projections supplied by Social Security and Medicare trustees. Adjustments were made in accordance with the deficit reduction plan passed by congress when they increased the debt ceiling.
The alternative projection adjusts the baseline projection with assumptions that congress will continue to act in a fashion similar to the way they have always acted. If tax loopholes are set to expire, the alternative projection assumes that congress will not allow them to expire, but rather will extend them. If reimbursement exceptions for providers of Medicare and Medicaid services are set to expire, the alternative projection assumes that congress will extend them.
In the baseline case, spending on Social Security, Medicare, and Medicaid trends up to about 15% of GDP, then remains relatively constant. In the alternative, and more realistic projection, spending on the three programs trends up to 14.5% by 2013, and almost 20% by 2080.
The report concludes:” The United States recently suffered from the most severe recession since the end of World War II. The economic downturn along with the federal government’s response to it and other actions taken to stabilize financial markets contributed to a rapid buildup in federal debt held by the public—increasing from roughly 36 percent of GDP at the end of 2007 to roughly 62 percent at the end of 2010—adding to the size and urgency of the federal government’s long-term fiscal challenge. Our simulations show that the Budget Control Act of 2011 will help reduce deficits. However, the longer-term fiscal challenge remains.”
The largest drivers in the long term are retiring Baby Boomers and the GOP’s continuing determination to repeal “ObamaCare” even though it has cost reductions for Medicare and Medicare built into it. Personally, I ‘d like to see some of the military spending cut so that Social Security, Medicare, and Medicaid are available to all Americans. Holding it steady at its current percentage of GDP is folly, considering that we already spend more on our military than the rest of the world combined.
Homework
Long Term Fiscal Outlook, Updated Fall 2011
The GAO has published simulations of the economy since 1992. The model produces two projections, a baseline projection, and an alternative projection. In any projection, the assumptions of the analyst are key to understanding and evaluating the conclusions.
In the case of the baseline projection, the GAO follows the CBO’s baseline projections of August 2011 for the first 10 years, then projects most spending will maintain a constant relationship to GDP. Interest on the national debt, and Social Security, Medicare and Medicaid payments use projections supplied by Social Security and Medicare trustees. Adjustments were made in accordance with the deficit reduction plan passed by congress when they increased the debt ceiling.
The alternative projection adjusts the baseline projection with assumptions that congress will continue to act in a fashion similar to the way they have always acted. If tax loopholes are set to expire, the alternative projection assumes that congress will not allow them to expire, but rather will extend them. If reimbursement exceptions for providers of Medicare and Medicaid services are set to expire, the alternative projection assumes that congress will extend them.
In the baseline case, spending on Social Security, Medicare, and Medicaid trends up to about 15% of GDP, then remains relatively constant. In the alternative, and more realistic projection, spending on the three programs trends up to 14.5% by 2013, and almost 20% by 2080.
The report concludes:” The United States recently suffered from the most severe recession since the end of World War II. The economic downturn along with the federal government’s response to it and other actions taken to stabilize financial markets contributed to a rapid buildup in federal debt held by the public—increasing from roughly 36 percent of GDP at the end of 2007 to roughly 62 percent at the end of 2010—adding to the size and urgency of the federal government’s long-term fiscal challenge. Our simulations show that the Budget Control Act of 2011 will help reduce deficits. However, the longer-term fiscal challenge remains.”
The largest drivers in the long term are retiring Baby Boomers and the GOP’s continuing determination to repeal “ObamaCare” even though it has cost reductions for Medicare and Medicare built into it. Personally, I ‘d like to see some of the military spending cut so that Social Security, Medicare, and Medicaid are available to all Americans. Holding it steady at its current percentage of GDP is folly, considering that we already spend more on our military than the rest of the world combined.
Homework
Long Term Fiscal Outlook, Updated Fall 2011
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