The 2020 Long-Term Budget Outlook

Relative to GDP, mandatory spending is projected to fall from 2021 to 2024 and then rise in most years through 2030. (Mandatory spending includes spending on Social Security and the major health care programs—mainly Medicare and Medicaid—as well as outlays for many smaller programs.) Outlays for discretionary programs decrease in relation to GDP from 2021 to 2030 because of caps on 2021 funding and because the rate of inflation is projected to be lower than the rate of growth of nominal GDP. (Inflation rates are used to project future spending under the rules that govern the construction of CBO’s baseline projections.)

After 2030, under the assumptions that govern the extended baseline, noninterest spending relative to the size of the economy continues to rise, reaching 23.1 percent of GDP by 2050. (For a summary of the assumptions about spending and revenues that underlie CBO’s extended baseline, see Table 3[17].) The two biggest mandatory spending programs, Social Security and Medicare, account for most of the increase in noninterest outlays, whereas discretionary spending is assumed to remain constant as a share of GDP through 2050.

Table 3.

Assumptions About Outlays and Revenues Underlying CBO’s Extended Baseline Projections

Source: Congressional Budget Office.

The extended baseline projections, which generally reflect current law, follow CBO’s 10-year baseline budget projections and then extend most of the concepts underlying those projections for the rest of the long-term projection period.

For CBO’s most recent 10-year baseline projections, see Congressional Budget Office, An Update to the Budget Outlook: 2020 to 2030 (September 2020),[18].

Excess cost growth is the extent to which the growth rate of nominal health care spending per person (adjusted to remove the effects of demographic changes) exceeds the growth rate of potential GDP per person. (Potential GDP is the maximum sustainable output of the economy.)

GDP = gross domestic product.

a. Assumes the payment of full benefits as scheduled under current law, regardless of the amounts in the program’s trust funds.

b. The exception to the current-law assumption applies to expiring excise taxes dedicated to trust funds. The Balanced Budget and Emergency Deficit Control Act of 1985 requires CBO’s baseline to reflect the assumption that those taxes would be extended at their current rates. That law does not stipulate that the baseline include the extension of other expiring tax provisions, even if they have been routinely extended in the past.

Under current law, net interest costs are projected to decline in the first few years of the projection period, as the average interest rates on debt held by the public remain low and the effects of those lower rates initially more than offset the effects of the accumulating debt. After several years, though, rising average interest rates on federal debt, along with projected increases in the amount of that debt, cause net interest costs to increase. By 2050, those costs are projected to equal 8 percent of GDP (nearly quadruple their value in 2030), boosting total federal spending to 31 percent of GDP in that year. Spending has exceeded that level only once, for a three-year period during World War II. In those years, when defense spending increased sharply, total federal spending topped 40 percent of GDP.

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