Taking the Long View on the Ryan Budget

Apr 7, 2014 | Budgets & Projections

House Budget Committee Chairman Paul Ryan's budget would substantially reduce deficits and debt over ten years, but one remaining question is what the budget would look like over the long term. The same day the budget was released, CBO produced an analysis of the budget that runs through 2040. Of course, CBO deputy director Bob Sunshine noted in an accompanying blog post that "CBO does not analyze or prepare estimates of budget resolutions because they are targets for the Congress and its committees and do not contain legislative language for specific proposals whose budgetary effect we could estimate." This means that the numbers CBO produces are simply based on the targets in the budget resolution, not the policies it specifies.

CBO's report shows that including the positive economic effects of the budget's deficit reduction, debt would continue to decline from 56 percent of GDP in 2024 to 18 percent by 2040. Using supplemental data in the CBO analysis, we estimate that excluding the economic effects, the debt path would be largely similar, declining from 57 percent of GDP in 2024 to 24 percent by 2040. Both of these compare very favorably to the budget's baseline -- CBO's current law baseline with a drawdown of war spending -- which has debt rising to about 110 percent of GDP by 2040.

Over the long term, the Ryan budget would significantly shrink the size of government compared to current law as it shrinks debt. The budget would adhere to current law revenue, but it would cap revenue at 19 percent of GDP so it would diverge in the long run from current law, under which revenue continues to rise above that level by the 2030s due to "bracket creep." For spending, the budget would get it down to almost 18 percent of GDP by 2024, and it would ultimately fall below that level. By contrast, current law would have spending rising to close to 30 percent of GDP by 2040, largely driven by growing interest costs to service the growing debt.

While CBO analysis is not an actual score of the Ryan budget, there are a number of policies that would produce significant savings over the long term, in particular from health policies. The highest profile one would transform Medicare into a premium support system starting in 2024 for new beneficiaries and tie the federal government's premium contribution to the average bid amongst insurers in each region. Because the competition would bring down premiums and the federal contribution, and more and more people over time would enter the new system, the policy would produce growing savings over time. In addition, the budget would institute cost-sharing reforms and raise the Medicare eligibility age starting in 2024, so those policies would have higher savings over the longer term than what shows up for one year within the ten-year window. Finally, the Medicaid block grant would save increasing amounts over time as the annual increase in the block grants would fall short of current projected growth each year.

It is no surprise given how the Ryan budget looks over ten years that it would continue to put debt on a downward path over the long term.