United States Public Debt - Forecasting

Forecasting

Tracking current levels of debt is a cumbersome but fairly straightforward process. Making future projections is much more difficult for a number of reasons. For example, before the September 11 attacks in 2001, the George W. Bush administration projected in the 2002 budget that there would be a $1.288 trillion surplus from 2001 through 2004.

In the 2005 Mid-Session Review this had changed to a projected four-year deficit of $851 billion, a swing of $2.138 trillion. The latter document states that 49% of this swing was due to "economic and technical re-estimates", 29% was due to "tax relief" (mainly the Bush Tax Cuts), and the remaining 22% was due to "war, homeland, and other enacted legislation" (mainly expenditures for the War on Terror, Iraq War, and homeland security).

Projections between different groups will sometimes differ because they make different assumptions. For example, in August 2003, a Congressional Budget Office report projected a $1.4 trillion deficit from 2004 through 2013.

However, a mid-term and long-term joint analysis a month later by the Center on Budget and Policy Priorities, the Committee for Economic Development, and the Concord Coalition stated that "In projecting deficits, CBO follows mechanical 'baseline' rules that do not allow it to account for the costs of any prospective tax or entitlement legislation, no matter how likely the enactment of such legislation may be." The analysis added in a proposed tax cut extension and Alternative Minimum Tax reform (enacted by a 2005 act), prescription drug plan (Medicare Part D, enacted in a 2003 act), and further increases in defense, homeland security, international, and domestic spending. According to the report, this "adjusts CBO's official ten-year projections for more realistic assumptions about the costs of budget policies", raising the projected deficit from $1.4 trillion to $5 trillion.

The Office of Management and Budget forecasts that, by the end of fiscal year 2012, gross federal debt will total $16.3 trillion. Thus, the projected debt will equal 101% of projected gross domestic product, which represents a milestone in the U.S. economy. Public debt alone, which excludes amounts that the government owes its citizens via various trust funds, will be 67% of GDP by the end of fiscal 2012.

Historical analysis of government spending or debt relative to GDP can be misleading, according to the GAO, the CBO and Treasury Department. This is because demographic shifts and per-capita spending are causing Social Security and Medicare/Medicaid expenditures to grow significantly faster than GDP. If this trend continues, government simulations under various assumptions project mandatory spending for these programs will exceed taxes dedicated to these programs by more than $40 trillion over the next 75 years on a present value basis.

According to the GAO, this will double debt-to-GDP ratios by 2040 and double them again by 2060, reaching 600% by 2080. A GAO simulation indicates that Social Security, Medicare, and Medicaid expenditures alone will exceed 20% of GDP by 2080, which is approximately the historical ratio of taxes collected by the federal government. In other words, these mandatory programs alone will take up all government revenues under this simulation.