CBO: Deficit to Improve Before Getting Much, Much Worse

The Congressional Budget Office warned policy makers on Tuesday not to become too comfortable with shrinking budget deficits.

The aging U.S. population, federal health-care costs, and expanded subsidies for health care will push government spending to a much larger level as a share of the economy than any period since World War II.

CBO, which provides budget estimates for Congress, said deficit is expected to continue shrinking over the next few years but will eventually climb again, “mainly because of increasing interest costs and growing spending for Social Security and the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies to be provided through health insurance exchanges).”

It said that currently, federal debt is roughly 73% of gross domestic product. Under current law, debt as a share of GDP is expected to fall to 68% by 2018 but then steadily increase because the gap between revenue and spending will widen. By 2038, the debt to GDP ratio will reach 100%, CBO estimated, “nearly equal to the percentage just after World War II and almost triple the percentage in 2007.”

The agency said “large and continually growing federal debt…would increase the probability of a fiscal crisis for the United States.”

CBO’s estimates came in its 2013 Long-Term Budget Outlook, which was released on Tuesday.

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