Today the Congressional Budget Office (CBO) released their latest Long-Term Budget Outlook, extending the agency's budget projections for the next 30 years. The report shows we are still on an unsustainable fiscal path, with debt set to reach unprecedented levels as a share of the economy in the near future.
CBO projects that debt held by the public will rise from its current level of 77 percent of Gross Domestic Product (GDP) to a historic high of 107 percent by 2035, eventually reaching 150 percent by 2047. These projections are slightly worse but generally similar to those in last year's long-term outlook (debt in 2046 is now projected to be 146 percent of GDP compared to 141 percent last year), owing to changes in law, revisions to CBO's assumptions and methods, and new data.
While deficits have come down from their recent post-recession high, they are expected to grow from 2.9 percent of GDP today to 5.0 percent by 2027 and 9.8 percent by 2047. The dramatic growth of deficits and the debt is largely driven by the high and rising costs of Social Security and major health care programs as well as the failure of revenue growth to keep up. Social Security, health programs, and interest on the debt will grow from 11.8 percent of GDP in 2017 to 21.8 percent of GDP by 2047.
The report also explains the major economic consequences of failing to address the growing debt:
Large federal budget deficits over the long term would reduce investment, resulting in lower national income and higher interest rates than would be the case otherwise. If the government borrowed more, more of people’s savings would be used to buy Treasury securities, and thus private investment would be crowded out… With less investment in capital goods—factories and computers, for example—workers would be less productive. Because productivity growth is the main driver of growth in people’s compensation, decreased investment also would reduce average compensation per hour, offering people less incentive to work.
Importantly, CBO's projections generally assume no changes in current law. Changes to the tax code, health care programs, and other spending could substantially change these projections, and if they are not paid for they would only worsen our already dismal fiscal trajectory. That is why policymakers will need to start making significant reforms to bring the rising debt under control and ensure the government has adequate fiscal space for other priorities.
Stay tuned for more analysis on the Long-Term Budget Outlook today and throughout the week.
Update: You can read our full analysis of the 2017 Long-Term Budget Outlook here.