The Congressional Budget Office projects, despite slight improvements in the past year, an explosive rise in federal debt as the country faces a fiscal reckoning in the coming decades.
In a much-anticipated update on Wednesday, the Congressional Budget Office — Congress’s nonpartisan group of budget experts — said that federal debt held by the public will balloon to 107% of the country’s gross domestic product by 2029, the highest level on record. It will then grow to a whopping 166% by 2053.
That is a massive amount of debt that means some important, but difficult, budgetary decisions will need to be made in the coming years. The CBO cautioned Wednesday that the risk of a “fiscal crisis” will increase as debt rises, as investors begin to doubt the government’s fiscal footing.
“Such an erosion of confidence would lower the value of Treasury securities and further drive up interest rates on federal debt as investors demanded higher yields to purchase those securities,” authors of the report warn.
“Concerns about the government’s fiscal position could lead to a sudden and potentially spiraling increase in people’s expectations for inflation, a large drop in the value of the dollar, or a loss of confidence in the government’s commitment to repay its debt in full, all of which would make a fiscal crisis more likely,” the CBO added.
Still, the projection is a bit of an improvement from the CBO’s last long-term budget outlook in June 2023, which predicted public debt would expand to 181% of GDP by 2053.
In terms of the deficit, the CBO projects that the total deficit for this year will equal 5.6% of GDP, slightly lower than estimated last year. The deficit in 2025, though, is set to be slightly higher than the previous CBO projections.
By 2053, the total deficit is forecast to be 8.4% of GDP, 1.6 percentage points lower than the CBO’s projections from last year.
In February, the CBO predicted that the federal budget deficit would be $1.6 trillion in fiscal 2024, down slightly from fiscal 2023’s deficit of $1.7 trillion. That is in part because of last year’s Fiscal Responsibility Act, a bipartisan deal that capped discretionary spending as part of the debt limit negotiations. While that is a decrease, the budget deficit is still historically high.
The increasingly dire situation with the country’s debts and deficits has prompted calls for Congress and the president to act, although long-term and sustainable solutions are a tricky ask because it would mean dramatically cutting spending, raising taxes, or both — all options that are a tough sell for lawmakers who would face pushback from constituents and potentially endanger their reelection prospects.
House Speaker Mike Johnson (R-LA), in his first floor speech as leader of the House last year, used the opportunity to draw attention to the country’s precarious financial situation. He proposed a bipartisan fiscal commission that would work to tame the country’s deficits and burgeoning national debt.
In January, the House Budget Committee voted to advance bipartisan legislation that would form a panel consisting of both Republican and Democratic lawmakers from both chambers of Congress, in addition to outside experts. The committee would work to produce a report and propose legislation that would stabilize the ratio of public debt to gross domestic product to at or below 100% within 10 years.
Outside of debt and deficits, the Wednesday CBO report also included forecasts for other crucial economic metrics. The country has been grappling with the worst inflation in decades, which has fallen over the past year but still remains about a percentage point above the Federal Reserve’s preferred 2% level.
The CBO now projects that inflation, as gauged by the personal consumption expenditures price index, will be running at 2.2% by the end of 2024. Inflation, as gauged by the more popular consumer price index, will be running at 2.6% by year’s end, according to the CBO.
The report contends that inflation will continue to slow through 2026 to a rate that is consistent with the Fed’s long-term goal of 2%.
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Compared to its June 2023 report, the CBO predicts that through 2024-2053 real GDP will grow faster, the labor force will be larger, and interest rates will generally be higher than in last year’s projections.
“Faster growth in real potential GDP is driven, in part, by faster growth in the potential labor force,” the report reads. “The potential labor force grows faster over the next 10 years primarily because of significant upward revisions to the agency’s projections of net immigration.”