The federal government is on course to add trillions of dollars to its debt over the next decade even as many national priorities are neglected. Beyond that, The Concord Coalition says, the 30-year projections released today by the Congressional Budget Office (CBO) present an even darker picture: the debt continuing to rise rapidly in coming decades, eventually reaching unprecedented levels.
“In this year’s congressional election campaigns, we can expect to hear a great deal about strengthening the country and looking out for our children and future generations,” says Robert L. Bixby, Concord’s executive director. “But the latest long-term projections from the budget office confirm once again that we are falling short on these aspirations, with Washington on a financial path that is clearly unsustainable and that puts our nation and its economic future at risk.”
Bixby adds: “Those who seek House and Senate seats this year should review these new projections carefully and should tell the public — as specifically as possible — what they would do to put the country on a more responsible course.”
The federal debt currently amounts to 78 percent of the gross domestic product (GDP), its highest level since shortly after World War II. Under current laws, CBO projects in its 2018 Long-Term Outlook, that figure would rise to nearly 100 percent of GDP by the end of the next decade and 152 percent by 2048. That amount, CBO says, “would be the highest in the nation’s history by far.”
This projection also assumes many of the recent income tax cuts will expire in 2025 and that appropriations spending is cut well below levels recently approved. Without those assumptions, the long-term outlook would be even worse.
The report warns, “The prospect of large and growing debt poses substantial risks for the nation and presents policymakers with significant challenges.”
Such high levels of public debt would reduce national savings and income, hurt economic growth, increase interest costs for businesses and the government itself, put increasing pressure on important federal programs, and limit the nation’s ability to respond to new and unforeseen challenges.
In addition, CBO warns that high and rising public debt will increase the likelihood of a fiscal crisis in which investors would demand extremely high interest rates on further loans to the federal government.
Key factors in the deteriorating fiscal picture are the aging U.S. population and rising health care costs. The government must spend more each year just to maintain current service levels for more beneficiaries of programs like Social Security and Medicare. At the same time, health care costs grow more quickly than the economy. Tax collection will not keep pace with spending growth as the working-age population shrinks relative to the retiree population.
The budget office also warns that interest payments on the federal debt are expected to rise rapidly for two reasons: The debt will continue to grow, and interest rates are expected to eventually increase to levels that are more typical of the past.
Interest costs are projected to grow to their highest level ever, 6.3 percent of GDP, by 2048. As the CBO says, interest costs “would exceed mandatory spending other than that for Social Security and the major health care programs in the next few years, exceed all discretionary spending by 2045, and be about equal to spending for Social Security by 2048.”
The chart below shows the sources of the government’s projected spending growth in the coming decades.
Much of this dismal picture was detailed in the CBO’s annual budget and economic outlook for the next 10 years, which projected in April that the nation would soon start running trillion-dollar deficits in perpetuity. Bixby, who called it “the most alarming budget outlook in our nation’s history,” noted that Congress and President Trump had taken steps over the previous year to increase federal deficits rather than decrease them.
The magnitude of the budget hole can be illustrated by CBO’s estimate for what it would take to stabilize the level of debt over the next 30 years. To reach the same level of debt (78 percent of GDP) in 2048 as we have now, it would require a cut in spending, increase in revenue, or some combination of those totaling 1.9 percent of GDP every year beginning in 2019. This would be about $400 billion of deficit reduction in that first year, an amount roughly the size of federal Medicaid spending and 25 percent more than the government takes in through the entire corporate income tax.
“The CBO’s new long-term projections are yet another reminder that the United States must pursue broad budget reforms to protect its future, including its economic strength and its position of global leadership,” Bixby says. “American voters this year should look for congressional candidates who understand the need for such reforms and have the courage to pursue them.”
Media Contact: Steve Winn, [email protected], (703) 254-7828