Outlook on Long-Term Growth Remains Dim
The Congressional Budget Office has released its budget and economic outlook for 2015-2025, and there is not a lot to cheer about.
The CBO's report offers stern warnings about the slow rate of economic growth and the size of our national debt, despite strong economic growth in the last two quarters of 2014.
This latest CBO report is an update from last year's projections, which served as the basis for the Foundation's report The Growth Imperative: How Slow Growth Threatens Our Future and the American Dream. In that report, economist Douglas Holtz-Eakin of American Action Forum—and a former CBO director—pointed to a projected annual growth that was rate well under the historical trendline.
And things aren't looking any better a year later.
The CBO now projects that growth between 2014 and 2018 will decline from 2.7% to 2.5%. Moreover, the CBO projects an annual growth rate of 2.2% between 2020 and 2025—more than a full percentage point lower than the average between 1947 and 2013.
What does a single percentage point of growth mean? According to Holtz-Eakin, a growth rate of 3% represents 1.2 million more jobs and $4,200 more in annual income.
Other "lowlights" from the CBO outlook:
- Deficits will remain steady through 2018, but then shoot up. By 2025, deficits will be just under $1.1 trillion, bringing the total amount of national debt to 79 percent of GDP.
- The growth in costs of mandatory programs will outpace the economy. These costs include thoses associated with Social Security, health care programs including Medicare and Medicaid, and net interest costs.
- The national debt, according to the CBO, could have "serious negative consequences," in the form of higher interest payments and restrained economic growth. Debt will also leave policymakers with less flexibility to address unexpected challenges.
According to Holtz-Eakin, this slow growth and growing debt can only be addressed through policy changes that emphasize entitlement reform.
"The CBO outlook is a reminder that recent declines in the deficit are not a tribute to policy, but rather to a resilient private sector that has risen from the depths of the Great Recession," Holtz-Eakin wrote on the American Action Forum blog. "To the extent that policy has been involved, it has been a mistaken focus on discretionary spending caps at a time when mandatory spending is exploding."
The Growth Imperative Tour will begin on Jan. 28 in Richmond, Virginia during the Virginia Chamber of Commerce Capitol Days event. Foundation President John R. McKernan Jr. will join J.D. Foster, the deputy chief economist of the U.S. Chamber of Commerce, in outlining the danger of our slow growth path.