CBO:  Budget Outlook Worsens Slightly, Medicare and Medicaid Spending Up 
February 28, 2004

On Friday, the Congressional Budget Office (CBO) released a slightly more pessimistic "baseline" budget projection.  Higher Medicare and Medicaid outlays were the main culprit.

The immediate press attention was focused on CBO's new estimate of the President's budget proposals, and whether or not those proposals would really lead to a reduction in the federal deficit. 

To a large extent, the answer to that question depends on whether it's appropriate to leave a chunk of overseas military spending out of the budget (it's not) or to assume that Congress will allow the Alternative Minimum Tax (AMT) to raise the taxes of million of middle class families (it won't).

But the shenanigans in President Bush's budget are not the main story.

The most important story from CBO's new projections is that forecasts of future budget deficits are still getting worse.

Table 1 (below) tells the story.  CBO now projects that the 10-year cumulative deficit will be $119 billion higher than its previous projections, which were released in January 2004.

Revenues will be about $17 billion lower.  Meanwhile, Medicare spending is projected to be almost $50 billion higher, and projected Medicaid spending is up by $32 billion.  Other spending is up $6 billion.

As a result of lower projected revenues and higher projected spending, CBO calculates that the federal government will owe $15 billion more in interest payments on the national debt within the 10-year budget period.

CBO will fill in the details of the upward revisions to Medicare and Medicare when it releases a new baseline "fact sheet" on Tuesday, March 2.  However, we know a little already.  CBO indicates that the upward revision to the projection of Medicare spending is related to Medicare Parts A (hospital) and B (physician and outpatient) spending, not Part C (private health plans) or D (drugs).  That implies that CBO has not revised its estimates of last year's Rx bill.  Instead, it seems these revisions were based on new forecasts of other trends in health spending or Medicare payments.

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 Table 1.

CBO's Budget Projections Worsen Slightly
(in billions of dollars, by fiscal year)
	2005-2014
Revenues (- = lower revenues projected)	-17
Outlays (+ = higher outlays projected)
Medicare	49
Medicaid	32
Other Spending	6
Debt Service	15
Total Increase In Deficit	119
Source: Congressional Budget Office letter to Sen. Stevens, February 27, 2003, Table 5.

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Links:
Congressional Budget Office Preliminary Results of CBO's Analysis of the President's Budgetary Proposals for Fiscal Year 2005 (February 27, 2004)

Washington Post CBO Disputes Bush Promise to Cut Deficit In Half in 5 Years:  Budget Analysis Challenges Administration's Forecasts (February 28, 2004)

Centrist Policy Network Medicare and Rx Drug Resource Page

Centrists.Org Deep Cuts in Non-Security Spending and Rapid Economic Growth Won't Balance the Budget (February 2, 2004)

Centrists.Org No-BS Long-Term Budget Baseline (Jan. 2004) (January 26, 2004) 

Centrists.Org CBO:  Faster Real GDP Growth, Lower Revenues, Higher Deficits and Interest Costs Ahead (January 26, 2004)

Centrists.Org The Fourth Entitlement:  Interest (December 1, 2003)

Centrists.Org Issue Summary:  Budget and Tax Policy (Basics)