CBO: Debt-to-GDP Will Double in Three Decades

Jan 30, 2019 | Budgets & Projections

CBO’s latest baseline projected that current law debt will rise rapidly from today’s post-war record-high levels over the next decade. Buried further in the report, CBO’s analysis also shows debt reaching unprecedented levels over the long-term.

New 30-year projections from CBO show that under current law, debt will reach its previous all-time high of 106 percent of GDP (recorded just after World War II) by 2035. By 2049, CBO projects debt will have nearly doubled from today’s levels, reaching 152 percent of GDP. The United States has never held such high levels of debt.

Driving this rising debt is a rapid growth of health and retirement spending, with too little revenue to cover the cost. For example, CBO projects Social Security spending will average 6.3 percent of GDP in the 2040s compared to 4.9 percent today, while health care spending will average 8.9 percent of GDP, compared to 5.2 percent today. Revenue will also grow (from 16.5 percent of GDP today to 19.3 percent in the 2040s) – but not enough to keep up with spending. The resulting mismatch will lead federal interest costs to rise from 1.8 percent of GDP today to an average of 5.2 percent in the 2040s.

This ongoing mismatch will lead budget deficits to widen over the next three decades. As recently as 2015, the deficit was only 2.4 percent of GDP and today it is 4.2 percent of GDP. Under current law, CBO projects deficits to reach 5 percent of GDP by 2030, 7 percent by 2040, and over 9 percent of GDP by the end of the decade  – more than 50 percent higher than any time in history outside of the Great Recession and World War II. It is unlikely this level of annual borrowing would be sustainable.

Making matters worse, these projections may actually be too optimistic. Under CBO’s Alternative Fiscal Scenario (AFS), which assumes lawmakers will continue current tax and spending policies, debt would reach an all-time record share of the economy by 2030, at which point annual deficits would total about 7 percent of GDP.

While CBO has not issued new long-term projections for the AFS, we previously estimated that debt would reach 225 percent of GDP by 2050 and exceed 600 percent of GDP by 2093 under that scenario. There is no historical precedent, theoretical basis, or international experience to suggest such levels of debt are possible.

Policymakers cannot allow the fiscal trajectory to continue on its current course. A bold mixture of revenue increases, entitlement reforms, and spending cuts along with a pro-growth agenda will be needed to put debt on a downward sustainable path. Without doing so, we are on track to experience unprecedented levels of debt, which could present a grave threat to our nation.