In his weekly WSJ Capital column of 4/9/09, David Wessel reviews the CBO projections for President Obama’s proposed budget.
“The issue isn’t today’s deficit. Deficits are supposed to widen at times like this. The issue is the size of the deficit .. when the recession is past.” A CBO graph of U.S. debt, the deficit, is not pretty going forward. In 2007, the deficit was a little over a third of GDP. It is projected to go to 54% of GDP.
Rising health care cost have become the primary concern of budget projections, as the Director of the CBO notes. “Over the past 30 years, total national spending on health care has more than doubled as a share of GDP.” That doubling is not double the cost, but double the percentage of GDP. GDP has grown six-fold, meaning that health care costs have risen by a factor of 12.
This CBO graph from January 2009 of Debt Held by the Public as a Percentage of GDP from 1968 to 2010 is interesting. (Scroll down a few graphs to get to this one) Now look at a comparison of the January projection and the revised projection based on Obama’s budget. By 2012, projected Federal revenues will be about 18% of GDP and continue at that level for 7 years, till 2019. Spending will be 23% of GDP and climb to almost 25% of GDP.
Wessel notes that “Republicans, such as Wisconsin Rep. Paul Ryan, counter with proposals that combine tax cuts with spending cuts so severe that even a Republican Congress probably wouldn’t pass them – and still show significant deficits through 2019. So either taxes as a share of GDP rise or spending on those popular benefit programs (or everything else) is throttled back.” Wessel concludes his article with a sobering summary: “For 15 years, the Americans people have been told they could have it all. They deserve to be told that they can’t have it all in the future.”
For a historical perspective, take a look at CBO projections in 2003, forecasting an approx $16B GDP in 2009 and an unemployment rate of 5.2%. Recent, and more accurate, projections for 2009 are $14.2B in GDP with an unemployment rate of 8.3%.
As we can see, projected deficits for the coming years look bad and those projections do not take into account unpredictable events like another attack on the U.S., an escalation of violence in Iraq, a continuing cascade of business failure leading to unemployment above 10%.
Every year the Social Security Administration sends each of us a statement of projected monthly benefits when we retire. Don’t count on getting all of that.