Federal Spending on Various Categories of Means-Tested Programs and Tax Credits

Growth in Means-Tested Programs and Tax Credits for Low-Income Households

During the past 40 years, federal spending for major means-tested programs and tax credits for low-income households more than tripled as a share of gross domestic product. In 2012, such spending totaled $588 billion, one-sixth of all federal outlays.

Over the next decade, spending on those programs will continue to rise under current law, CBO projects, driven mainly by growth in Medicaid and other means-tested health care programs.

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Federal Debt Held by the Public

The Budget and Economic Outlook: Fiscal Years 2013 to 2023

Although the federal deficit will drop below $1 trillion in 2013 for the first time since 2008, under current law annual deficits and federal debt will stay at historically high levels relative to the economy through 2023, CBO projects.

Economic growth will remain slow this year but is expected to speed up next year. Even so, CBO projects that the unemployment rate will remain above 7.5 percent through 2014.

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Debt Held by the Public Under Current Law and Alternative Paths

Macroeconomic Effects of Alternative Budgetary Paths

To help lawmakers assess the economic effects of broad changes to tax and spending policies, CBO examined three alternative budgetary paths that would increase or reduce budget deficits relative to current law.

Through 2023, those paths would result in considerably different trajectories of federal debt and the nation’s output and income.

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Refundable Tax Credits

In 1975, the first refundable tax credit—the earned income tax credit (EITC)—took effect. Since then, the number and cost of refundable tax credits—credits that can result in net payments from the government—have grown considerably.

Those credits will cost $149 billion in 2013, CBO estimates, mostly for the EITC and the child tax credit.

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Forecast Minus Actual Growth in Inflation-Adjusted Output: Two-Year Forecasts

CBO's Economic Forecasting Record: 2013 Update

CBO's forecasts of output, income, inflation, and interest rates play a significant role in the agency's budgetary analysis.

Those forecasts have been comparable in quality with those of the Administration and the Blue Chip consensus. When the agency's projections have proved inaccurate by large margins, the errors have tended to reflect difficulties shared by other forecasters.

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Choices for Deficit Reduction

Putting the federal budget on a more sustainable path is likely to require a combination of policies, many of which may stand in stark contrast to policies now in place.

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