Figure 2: Deficit Path in "No Action" Simulation (1995-2025)

Figure 2: Deficit Path in "No Action" Simulation (1995-2025)

Percent of GDP

1995

2000

2005

2010

2015

2020

2025

Let me explain these ominous trends. The increased spending is

principally a function of escalating federal spending on health care and

Social Security, which is driven by projected rising health care costs and

the aging of our population.4 Spending on interest on our national debt

also rises as annual deficits and accumulated public debt expand.

Essentially, current commitments in these areas become progressively

unaffordable for the nation over time. Without any significant changes in

spending or revenues, such an expanding deficit would result in collapsing

investment, declining capital stock, and, inevitably, a declining economy

by 2025.

As emphasized in both our 1992 and 1995 reports, we do not believe that

such a scenario would take place. Rather, we believe that the prospect of

economic decline would prompt action before the end of our simulation

period. Nevertheless, this "no action" scenario, by illustrating the future

Budget assumptions rely upon the CBO January 1995 estimates through 2004 to the extent

practicable. Beyond that, Social Security estimates were based on the April 1995 intermediate

projections from the Social Security Trustees. Medicare projections were based on the Health Care

Financing Administration (HCFA) long-term intermediate forecast from the Medicare Trustees'

April 1995 report. For Medicaid, in the absence of HCFA projections, we used projections developed in

1994 by the Bipartisan Commission on Entitlement and Tax Reform.

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