Saturday, February 23, 2008

Long-run Budget Projections

As stated in my prior post, the gross federal debt may give a better indication of our pending liabilities than the debt held by the public. To be more precise, however, the gross federal debt includes the debts that are currently owed to trust funds which will help deal with those liabilities. It gives no indication of liabilities that are not covered by those debts. For example, the following table can be found on page 8 of the Summary of the 2007 Annual Social Security and Medicare Trust Fund Reports:


----- ----- ----- -----
First year outgo exceeds income
excluding interest................ 2018 2005 2017 2007
First year outgo exceeds income
including interest................ 2028 2013 2027 2011

Year trust fund assets are exhausted 2042 2026 2041 2019

OASI refers to the Old-Age and Survivors Insurance Trust Fund, DI refers to the Disability Insurance Trust Fund, and OASDI refers to the combination of those two funds. Finally, HI refers to the Medicare Hospital Insurance Trust Fund, also referred to as Medicare Part A. As can be seen, the OASDI and HI trust funds are projected to run out of funds in 2041 and 2019, respectively. This is reflected in the following graph which is based on long-run budget projections from page 188 of the Analytical Perspectives in the recently-released budget:

The actual numbers and sources are at As can be seen, the debt held by the public is projected to reach 154.4% of GDP by 2080 if entitlement savings proposed in the just-release budget are implemented. This far surpasses the prior high of 108.6% of GDP reached at the end of the Second World War. If the proposed entitlement savings are not implemented, the debt held by the public is projected to reach a much higher 283.4% of GDP by 2080.

It is important to note these are projections, not predictions. The current law on which these projections are based would very likely have to change before the debt could reach such historic levels. Still, just as the gross federal debt measures some information that is missed by the debt held by the public, so do these projections measure some information that is missed by the gross federal debt. It is worth looking at all of these measures in trying to judge the financial condition of the federal government.

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About Me

I became interested in U.S. budget and economic matters back in 1992, the first time that I remember the debt becoming a major issue in a presidential election. Along with this blog, I have a website on the subject at I have blogged further about my motivations for creating this blog and website at this link. Recently, I've been working on replicating studies such as the analysis at this link.

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