CBO Shows an Unsustainable Long-Term Budget Outlook
The Congressional Budget Office (CBO) today released its 2015 Long-Term Budget Outlook, showing a clearly unsustainable long-term path for debt. The featured projections go out 25 years, building off of their more frequently released 10-year projections, and the further they go out, the worse the fiscal picture gets.
CBO projects that debt will remain relatively stable at about 74 percent of Gross Domestic Product (GDP) through 2020, but then rise continuously, reaching 78 percent of GDP by 2025 and 103 percent by 2040. Beyond 2040, debt would continue to grow continuously to 181 percent of GDP by 2090. Under CBO's Alternative Fiscal Scenario, debt would reach about 175 percent of GDP by 2040. These numbers are very similar to last year, when CBO also showed an unsustainable path.
This growing debt is the result of widening deficits as the growth of Social Security and health care spending outpaces revenue. Deficits will grow from 2.7 percent of GDP in 2015 to 3.8 percent by 2025 and 5.9 percent by 2040. These deficits are driven mostly by growth in Social Security, health care, and interest spending, which rise from a combined 11.4 percent of GDP in 2015 to 18.5 percent by 2040.
Even these projections may be optimistic because they involve allowing several temporary tax provisions that have routinely been extended to expire (or remain expired), keeping the sequester in place, allowing revenue to rise well above its historical share of GDP, and keeping discretionary spending at a historically low share of GDP. The Alternative Fiscal Scenario (AFS), which changes many of these assumptions to keep more in line with historical experience, shows debt climbing much faster to 175 percent by 2040 (including the economic effects of debt), much higher than the comparable 107 percent for the Extended Baseline.
Either way, CBO's projections show a fiscal future where debt rises to nearly unprecedented levels, and spending going just to interest on the debt takes up a large and growing share of the budget. Lawmakers will need to make significant reforms to the budget to ensure debt is sustainable and the federal government has the fiscal space to be able to budget effectively.