Four Key Takeaways from the Long-Term Budget Outlook
Projections of the long-term budget outlook have deteriorated significantly since last year, largely stemming from the “tax extenders” legislation enacted at the end of 2015, according to a report released yesterday by the nonpartisan Congressional Budget Office (CBO). In its 2016 Long-Term Budget Outlook, the CBO projects that federal debt will climb to 141 percent of GDP within 30 years— exceeding the highest level of debt ever recorded at the end of World War II by a large margin.
Here are some of the key takeaways from our analysis of the CBO’s 2016 Long-Term Budget Outlook:
1. Federal debt is projected to climb to 141 percent of GDP under current law by 2046.
2. Rising debt is a result of a structural imbalance between revenues and spending: under current law, spending growth, which is fueled primarily by the aging of the population and growing healthcare costs, significantly outpaces the projected growth in revenues.
3. As the debt grows and interest rates rise, interest costs are projected to increase rapidly: by 2022, they could exceed what the federal government has historically spent on R&D, infrastructure, and education combined, and could exceed them by more than two times by 2046. In fact, over the next 10 years, the federal government will spend $5.8 trillion on interest.
4. Rising debt will harm our economy and slow the growth of productivity and wages. On our current path, the annual income loss for a 4-person family would be $12,000 by 2046, on average.
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Further Reading
With $37 Trillion in Debt, Is the U.S. Headed for More Credit Downgrades?
Three successive downgrades of the U.S. credit rating should alarm elected leaders, but our national debt remains on an unsustainable trajectory.
The Federal Government Has Borrowed Trillions. Who Owns All that Debt?
Most federal debt is owed to domestic holders, but foreign ownership is much higher now than it was about 50 years ago.
The Fed Reduced the Short-Term Rate, but Interest Costs Remain High
High interest rates on U.S. Treasury securities increase the federal government’s borrowing costs.