Uncle Sam’s Balance Sheet: A Deep Dive into the CBO’s Latest Predictions

The Congressional Budget Office, or CBO as us cool kids call it, just dropped their latest report on the federal budget and the economy. Think of it as a sneak peek into Uncle Sam’s finances for the next decade. And spoiler alert: it’s kinda a nail-biter.

Before we dive into the nitty-gritty, here’s the disclaimer: this report assumes that Congress doesn’t touch current laws about taxes or spending. Yeah, right, like that’s gonna happen. But hey, a writer can dream, can’t they?

Show Me the Money (Or Lack Thereof)

Deficits: Bigger Than My Student Loan Debt

Okay, let’s talk deficits. You know, that thing that happens when the government spends more money than it brings in? Yeah, that. The CBO predicts that in fiscal year twenty-twenty-four, the federal budget deficit will be, wait for it, almost two trillion dollars. Ouch. That’s like trying to pay for a Tesla with spare change you found in the couch cushions.

And get this, it gets even wilder. If you take out all the fancy accounting tricks (timing shifts, anyone?), the adjusted deficit is projected to balloon to nearly three trillion dollars by twenty-thirty-four. To put that in perspective, that’s like the entire GDP of, like, Italy. Mamma mia!

Now, you’re probably thinking, “Okay, but how bad is that really?” Well, let’s look at the deficit as a percentage of GDP, which is kinda like figuring out how much of your paycheck goes to paying off your credit card debt. In twenty-twenty-four, the adjusted deficit is projected to be seven percent of GDP. That’s high, my friends. But here’s a glimmer of hope: it’s expected to shrink a bit over the next few years before shooting back up again. By twenty-thirty-four, it’s projected to hit almost seven percent, which is way higher than the average over the past fifty years. Yikes.

Debt: We’re Gonna Need a Bigger Piggy Bank

So, we’ve established that the government is spending more than it’s making. But what does that mean for the national debt? Get ready for some serious sticker shock. The CBO projects that the national debt will grow faster than the economy from now until twenty-thirty-four. Translation: we’re piling on debt faster than we’re creating wealth. Not exactly a recipe for economic stability.

What’s driving this debt spiral? Well, for starters, interest rates are going up, which means the government has to pay more to borrow money. On top of that, we’re spending more on things like Social Security and Medicare as the population ages, while discretionary spending (the stuff Congress actually has some control over) is shrinking. And to add insult to injury, revenue growth is lagging behind. It’s like trying to fill a bathtub with a leaky faucet while the drain is open.

The result? The debt held by the public is projected to explode from ninety-nine percent of GDP in twenty-twenty-four to a whopping one hundred and twenty-two percent in twenty-thirty-four. To put that in perspective, that’s even higher than the previous record set after World War II. We’re officially in uncharted territory, folks.

Spending and Revenue: The Tale of Two Trends

Outlays: The Government’s Shopping Spree

Let’s break down the government’s spending habits, shall we? In twenty-twenty-four, total federal outlays (that’s government-speak for spending) are projected to be a mind-boggling almost seven trillion dollars. That’s like buying everyone in America a pony and then some. If you adjust for those pesky timing shifts, that number jumps up to almost seven trillion dollars. And just for fun, let’s express that as a percentage of GDP, which comes out to a hefty almost twenty-four percent. That means almost a quarter of everything produced in the US economy is going straight to Uncle Sam.

Adjusted Outlays: A Slow Creep Upwards

Now, the good news (if you can call it that) is that adjusted outlays as a percentage of GDP are expected to hold relatively steady for a few years, hovering around twenty-three point five percent. But don’t pop the champagne just yet. By twenty-thirty-four, they’re projected to climb to almost twenty-five percent, thanks in part to the rising costs of those entitlement programs we talked about earlier (looking at you, Social Security and Medicare) and – you guessed it – those pesky interest payments on the national debt.

Revenues: Not Keeping Up with the Joneses (or the Spending)

Okay, so the government is spending a whole lotta dough. But what about the flip side of the equation: revenue? Sadly, it’s not a pretty picture. In twenty-twenty-four, the Feds are projected to rake in almost five trillion dollars in revenue, which sounds like a lot until you realize it’s only about seventeen percent of GDP.

The silver lining (and it’s a thin one, folks) is that revenues are expected to increase slightly over the next few years as some of those tax cuts from a few years back expire. But even then, they’re only projected to reach about eighteen percent of GDP by twenty-twenty-seven and then plateau. In other words, revenue growth is lagging way behind spending growth, which is like trying to outrun a cheetah on a treadmill. It ain’t gonna happen.

Changes in CBO’s Budget Projections: Surprise, Surprise, It’s Worse Than We Thought

Remember those projections the CBO made back in February of twenty-twenty-four? Well, let’s just say they were a tad optimistic. The latest report shows that the twenty-twenty-four deficit is actually twenty-seven percent larger than originally projected. And the cumulative deficit from twenty-twenty-five to twenty-thirty-four? Yeah, that’s ten percent higher than they thought. Ouch.

So, what’s to blame for this budgetary mess? Well, Congress has been busy passing some spendy legislation, adding a cool one point six trillion dollars to projected deficits over the next decade. That includes a hefty chunk of change for emergency aid to Ukraine, Israel, and some Indo-Pacific countries. And here’s the kicker: that aid is expected to continue, which means discretionary outlays will be almost a trillion dollars higher by twenty-thirty-four. So much for fiscal responsibility.

The Economic Crystal Ball: Gazing into the Future

Alright, we’ve covered the government’s spending habits (or lack thereof). Now let’s take a look at the bigger picture: the US economy. The CBO’s crystal ball isn’t exactly sparkling, but it’s not all doom and gloom either. Think of it as cautiously optimistic with a side of “buckle up, buttercup, it’s gonna be a bumpy ride.”

Economic Growth: Slow and Steady (Hopefully)

Remember that economic sugar high we were riding in twenty-twenty-three? Yeah, those days are gone. The CBO projects that economic growth will slow down to two percent in twenty-twenty-four. What’s behind the slowdown? Well, for starters, unemployment is expected to tick up a bit, and inflation, while still a pain in the neck, is expected to ease slightly. It’s like that old saying: “What goes up must come down.” Except in this case, it’s more like “What goes up really fast must eventually slow down a bit.”

But hey, it’s not all bad news. The Federal Reserve, those masters of the monetary universe, are expected to step in and cut interest rates in early twenty-twenty-five. And that, my friends, should help to prop up the economy a bit. The CBO predicts that growth will stabilize at two percent in twenty-twenty-five and then settle into a comfortable one point eight percent groove from twenty-twenty-six onwards. Not exactly gangbusters growth, but hey, we’ll take what we can get.

Oh, and one more thing: remember that immigration surge we’ve been hearing about? Well, the CBO thinks it’s gonna stick around for a while, which is actually good news for the economy. More people means a bigger labor force and more output. It’s basic economics, folks.

Inflation: The Price You Pay for Everything

Let’s talk about everyone’s favorite topic: inflation. The CBO’s latest prediction is that inflation will finally start to chill out in twenty-twenty-four, but it’s still going to be a factor, especially for things like groceries, gas, and that avocado toast you love so much. The PCE price index, which is like the gold standard for measuring inflation, is projected to fall from two point seven percent in twenty-twenty-four to the Federal Reserve’s target of two percent by twenty-twenty-six. And after that? The CBO thinks it’ll stabilize. Fingers crossed they’re right because nobody wants to be paying ten bucks for a gallon of milk.

Interest Rates: The Cost of Borrowing Money (and Everything Else)

Remember those interest rate hikes the Federal Reserve has been slapping on the economy? Well, the good news is they’re probably going to take a break in twenty-twenty-four. The CBO expects short-term interest rates to stay put, with the federal funds rate (the one that everyone obsesses over) staying at its highest level since, wait for it, two-thousand-and-one! Yeah, it’s been a while.

But here’s where things get interesting: the CBO thinks the Fed will start cutting rates again in early twenty-twenty-five. And that, my friends, should give the economy a much-needed boost. As for those ten-year Treasury notes (you know, the ones that influence mortgage rates and all sorts of other fun stuff)? The CBO expects their interest rates to fall through twenty-twenty-six and then slowly creep back up again. So, if you’re thinking about buying a house, now might be a good time to lock in a low rate. Just sayin’.

Changes in CBO’s Economic Projections: Adjusting the Forecast (Again)

Remember those February twenty-twenty-four economic projections we talked about earlier? Yeah, well, the CBO has made some adjustments. The good news is that they’re now projecting slightly higher economic growth for twenty-twenty-four. Woohoo! But wait, there’s a catch: they’re also projecting higher inflation for twenty-twenty-four. Bummer. And to top it all off, they’ve also revised their projections for short-term interest rates and the unemployment rate for twenty-twenty-four. Basically, they’re saying, “Hey, we got a few things wrong, but it’s all good, right?”

The good news (and yes, there is some) is that the differences between the CBO’s current projections and their previous ones get smaller the further out you look. So maybe, just maybe, they’re getting better at this forecasting thing. Or maybe the future is just too unpredictable. Either way, we’re all in this together, right?

The Long and Winding Road: Challenges and Uncertainties

The Entitlement Elephant in the Room

Okay, folks, it’s time to address the elephant in the room, or rather, the elephant in the budget: entitlement programs. We’re talking Social Security, Medicare, and Medicaid, those massive programs that provide crucial support to millions of Americans. The problem is, they’re also massive budget busters, and their costs are only going to go up as the population ages and healthcare costs continue to skyrocket. It’s like trying to outrun a tsunami on a unicycle. You can try, but you’re probably not going to succeed.

The CBO has been sounding the alarm about entitlement spending for years, and this latest report is no different. They’re projecting that spending on these programs will eat up an increasingly large share of the federal budget in the coming decades, crowding out other important priorities like education, infrastructure, and research. It’s a classic case of ” robbing Peter to pay Paul,” and it’s a problem that Congress can’t afford to ignore any longer.