The Congressional Budget Office released a new report Tuesday that projected the federal debt will be $7 trillion larger in the next 10 years, the cost of Social Security, Medicare and Medicaid will be $1.43 trillion a year and about seven million Americans will no longer have employer-provided health insurance because of the Affordable Care Act.
Debt & Deficit
Despite estimates that tax revenues will increase and the unemployment rate will fall within the next decade, the national debt will still continue to grow, according to the nonpartisan group’s annual Budget and Economic Outlook.
It is expected that the federal debt will be larger in 2023 than any other year since 1951 and it will be more than three-quarters (77 percent) of the gross domestic product (GDP). This figure is close to double the 40-year rate of 39 percent of GDP.
An important factor of the increase in the national debt over the next 10 years is interest costs. The CBO projects that interest payments “will be very high” and will continue to rise. Forecasts suggest interest costs will more than double by the end of the 10-year period and will be at their highest portion of GDP in the last 50 years.
Earlier last month, it was reported that the CBO projected the federal debt would actually be $27 trillion by 2022. Credit Suisse approximations showed that by 2022 that nearly all of the nation’s tax revenue will go towards entitlement programs and the interest, while everything else will be added to the debt.
The budget deficit is slated to be $845 billion in 2013, which is the first time that the deficit has dipped below the $1 trillion mark since President Barack Obama took office. Previous CBO reports showed that the budget deficit would increase above $1 trillion again by the end of the president’s second term.
“We have a large budget imbalance, we have large projected deficits, a debt that will remain at a historically high share of GDP and will be rising at the end of the coming decade. What that implies is that small changes in budget policy will not be sufficient to put the budget on a sustainable path,” CBO director Douglas Elmendorf told reporters.
These figures could change, however, by the end of the decade-long forecasting period because the outlook assumes that the automatic spending cuts required by the Congress in the 2011 Budget Control Act will remain intact.
The 10-year cumulative deficit is foreseen at $6.958 trillion. This number could increase by more than $1 trillion if Congress cancels the automatic spending cuts. The total would stand at more than $8 trillion.
Healthcare & Social Security
The CBO also looked at healthcare insurance programs and Social Security.
The organization found that about seven million people will no longer have employer-provided health insurance because of changes required by the president’s Affordable Care Act. This figure is up from the previous estimates of four million people. The reason why the number was revised is due to the lower marginal tax rates that Congress passed during the fiscal cliff debate earlier last month.
Estimates suggest that expanded healthcare coverage under the reform law would cost approximately $3 trillion by 2023, while an additional $134 billion in costs would take place through the new state-based healthcare exchanges for 26 million Americans.
Meanwhile, the cost of Social Security will nearly double by 2023 from the current $773 billion to $1.43 trillion. Social Security outlays will remain 25 percent of the federal government’s spending and five percent of the GDP. It will reach 5.5 percent of the GDP by 2023.
Medicare will cost $1.1 trillion as it will climb to 3.5 percent of federal spending in 2023. Medicaid is projected to cost more than half a trillion dollars and grow to 2.2 percent of the GDP in 2023.
This is a grand total of nearly $3.2 trillion
Changes in its forecast reflected a drop in spending growth for Medicare’s Part A hospital, Part B physician and Part D prescription drug benefits. It also included lowered expectations for a decrease in enrollment and an increase in younger, healthier beneficiaries in the Medicaid coverage poll.
Last year, the CBO reported that Social Security’s disability trust fund would be bankrupt by 2016. It also found that Social Security would run a deficit indefinitely and climb to $113 billion each year by 2022.
The U.S. economy will still have an unemployment rate above 7.5 percent for the next few years until it drops to 5.5 percent at the end of 2017. Federal revenues will increase by about 25 percent between 2013 and 2015. Federal spending will rise in terms of dollars, but shrink relative to a stronger economy. It did warn, though, that the rise interest costs will reach nearly one-quarter (23 percent) of GDP in 2023.
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