“In CBO’s projections, debt rises in relation to GDP over the next three decades, exceeding any previously recorded level—and it is on track to continue growing after 2053,” the Congressional Budget Office (CBO) reports in a new long-term budgetary outlook.
Published Thursday, the CBO report projects that “large and sustained primary deficits” [excluding net interest costs] will “cause net outlays for interest to almost triple in relation to GDP”:
“Rising interest rates and mounting debt cause net outlays for interest to increase from 2.5 percent of GDP in 2023 to 6.7 percent in 2053.”
Federal debt held by the public averaged 119% of GDP in the second quarter of this year. But, by 2053, CBO projects federal debt in relation to GDP to hit a record 181% - and keep rising after that.
Such high and rising debt is expected slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook.
In CBO’s projections, “real” (inflation-adjusted) potential GDP grows more slowly than it has in the past, due to slower growth in the potential labor force and in potential labor force productivity.
“In most years, growth in outlays is projected to outpace growth in revenues, resulting in widening budget deficits,” the CBO warns.
Federal revenues are expected to increase only about one percentage point, in relation to GDP, with individual income taxes accounting for nearly all of that growth. In contrast, receipts from payroll and corporate taxes are projected to decline by small amounts in relation to GDP over the next 30 years.
Federal expenditures on the major health care programs rise are projected to increase from 5.8% of GDP to 8.6% as the U.S. population ages and health care costs grow - with spending on Medicare accounting for more than four-fifths of the increase.
The aging population will also increase Social Security outlays, from 5.1% to 6.2% of GDP, the CBO predicts.
The business and economic reporting of CNSNews is funded in part with a gift made in memory of Dr. Keith C. Wold.