Yesterday, the Congressional Budget Office (CBO) released its annual Long-Term Budget Outlook for 2014. Compared to its 2013 outlook, the CBO projections include a significant reduction in real wage growth, to the tune of more than $40,000 over the next 10 years for a middle-income earner.
In its 2014 Budget and Economic Outlook published in February, CBO noted a reduction in gross domestic product (GDP) growth compared to its 2013 Budget and Economic Outlook. In particular, it projected that GDP growth would average 2.6 percent over the 2014–2023 period, as opposed to the 2.9 percent it had projected in 2013. CBO also lowered its projections for long-run potential GDP due to lower labor force participation, persistent effects of the recent recession and slow recovery, and federal tax and spending policies.
Compared to its 2013 Long-Term Budget Outlook, CBO’s 2014 outlook projects a reduction in real GDP growth by an average of $380 billion annually, or $3.8 trillion in total over the next 10 years. Additionally, and in large part due to lower economic growth, CBO’s 2014 outlook projects that average real-wage growth will be a full percentage point lower over the next 10 years—1.5 percent, compared to 2.5 percent—compared to its 2013 outlook.
To put this into perspective for the average working individual, someone earning $50,000 would have $4,200 less income each year, on average, or $42,000 less total income over the next 10 years. To make matters worse, the effects of lower real GDP growth and lower real-wage growth would compound over time. By 2050, the same individual making $50,000 annually today would have $7,500 less income per year. And, by the end of the 75-year projection period, in 2089, she would have $17,000 less income per year.
All told, the CBO report should make it clear that federal spending and debt is out of control and is only projected to get worse. The only way our economy can grow itself out of this impending fiscal crisis is if the federal government reduces its interference—through taxes, regulations, and the crowding out of resources—in the private sector. It is private-sector job creation that drives our economy and leads to long-run income growth.
