Keeping Medicare payments to physicians at present levels and eliminating discretionary and mandatory spending reductions that are scheduled to start in January would boost the gross domestic product (GDP) by about three-quarters of a percent by the end of 2013, the Congressional Budget Office (CBO) estimated in a November report.
The report, titled “Economic Effects of Policies Contributing to Fiscal Tightening in 2013,” projected that tax and spending changes mandated to begin in 2013 will lead to economic contraction in 2013. But the CBO authors also acknowledged that escalated spending will feed a surge in the federal debt that long-term could put the nation in a fiscal crisis.
“In August, CBO presented estimates of the budgetary and economic outcomes that would occur under current law and under an ‘alternative fiscal scenario’ that represents a continuation of many long-standing policies and thus a significant reduction in the amount of fiscal tightening next year,” the authors wrote. “To provide additional information about the sources of that tightening and its effects, this report presents estimates of the budgetary and economic impact of the main changes to current law that would occur under that alternative scenario, as well as estimates of the impact of eliminating various other components of fiscal tightening scheduled for 2013.”
Unlike the August report, this analysis assumed that fiscal tightening would be removed and that current policies would remain in place for two years, with tightening being implemented after that period. That included eliminating the scheduled automatic cuts to defense, nondefense spending and Medicare’s payment to physicians as well as extending various tax provisions.
If lawmakers override the sustainable growth formula that affects physician reimbursement, CBO reported, then outlays for Medicare would increase by $10 billion in fiscal year (FY) 2013 and $16 billion in FY 2014, compared with amounts projected in CBO’s baseline. But the additional nondefense spending also would increase GDP by 0.4 percent and add about 400,000 jobs in the fourth quarter of 2013.
CBO cautioned that extending a policy of reducing tightening beyond two years would further exacerbate the problem of public debt. “Such a path for federal debt could not be sustained indefinitely, so policy changes would be required at some point.”
The report is available here.