Growing federal debt still looms large over long-term budget projections. On Tuesday, the nonpartisan Congressional Budget Office released its 2014 Long-Term Budget Outlook, which showed higher levels of debt over the next decade.
CBO's projections differ dramatically from the rosier outlook coming from the White House Office of Management and Budget. CBO expects debt as a percent of GDP to reach 78 percent in 2024. OMB projects the debt to GDP ratio as rising to 75 percent and then declining to 72 percent by 2024. These differences stem from forecasts of GDP growth. As is often the case, OMB's forecasts are rosier than those of CBO.
CBO has also raised its long-term debt projections. Using a current law baseline, federal public debt is set to grow from 74 percent of GDP to 106 percent by 2039, higher than last year's Long-Term Budget Outlook, which projected public debt to be 102 percent of GDP by 2039. The change is the result of more pessimistic GDP projections. Nominal GDP in 2039 is now projected to be 4 percent smaller than in the prior estimate.
OMB projects nominal GDP in 2024 to be $27.4 trillion, while CBO projects a slightly more modest $27.1 trillion. OMB's projection of federal debt is also overly optimistic. While their outlooks on federal spending are fairly close, the two projections differ when it comes to federal revenue. CBO projects federal revenue to rise slightly to 18.3 percent of GDP by 2024, while the OMB projects a much higher 19.7 percent of GDP, reflecting higher GDP growth. This leads to a decline in the level of debt.
Regardless of whether the CBO or OMB projections are more accurate, Congress and President Obama should work together over the next year to adopt major cost-saving reforms to entitlement programs so that the next CBO Long-Term Budget Outlook can show improvement to America's fiscal woes.