In an analysis of its recent Budget and Economic Outlook, the Congressional Budget Office (CBO) underscores a key point: That growth in health care and retirement programs, together with rising interest payments, will drive projected federal deficits and debt higher in the coming decade and beyond.
“In the past few years,” the CBO warned in a blog post last week, “debt held by the public has been significantly greater relative to GDP than at any time since just after World War II, and under current law it will continue to be quite high by historical standards during the next decade.”
CBO says that figure will decline from 74 percent to 72 percent of GDP over the next three years. But under current law, it will then rise to 79 percent in 2024. This will be largely driven by interest payments and substantial spending growth in the government’s major benefit programs, outpacing government revenue.
An aging population and rising health care costs will push up spending for Social Security and major health care programs in this decade and beyond. In addition, mounting debt and the projected rise in interest rates from today’s unusually low levels will boost federal interest payments in the coming years.
This is why Washington must focus on fundamental fiscal reform even though the deficit are dropping in the short term. Unless fundamental changes are made — through spending cuts as well as revenue increases — debt as a share of GDP will rapidly increase after 2024 toward unsustainable levels.
Federal Budget Deficits Are Projected to Decline Through 2015 But Rise Thereafter, Further Boosting Federal Debt (CBO)
Director’s Presentation to the Economic Club of Minnesota (CBO)
Projections of Federal Spending Over the Next Decade (CBO)