Uncle Sam’s massive pile of debt is really starting to bite, according to a new Congressional Budget Office analysis Wednesday that shows rising interest costs are starting to eat up more of the government’s spending money.
Federal interest payments will be equivalent to 2.5% of the U.S. gross domestic product this year and will steadily rise in the coming years, to the point where by 2050, it will be the single biggest item in the budget, topping spending on Social Security, Medicare, Obamacare or the Defense Department.
And they will push the government ever deeper into the red, CBO said.
Without interest payments, the feds would end this year with a deficit equivalent to 3.3% of GDP. In 2053, the non-interest deficit will still be 3.3% — but interest payments alone will cost $5 trillion that year, tacking on another 6.7% of GDP to the deficit and leaving a hole of nearly $8 trillion that year.
It’s a pattern that can’t continue, CBO warned.
“Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt and pose significant risks to the fiscal and economic outlook,” CBO said in releasing its long-term budget outlook.
Looking out over the next 30 years, the analysts said they see federal revenue remaining relatively flat, at roughly 18% to 19% of GDP. That’s actually higher than the average of the last 30 years.
But the big damage comes on the spending side.
CBO said the government will spend roughly 24% of GDP this year, growing to 27% by 2043 and topping 29% by 2053. That’s all driven by the big entitlement programs like Social Security and Medicare, and by rising interest costs on the debt.
There are two reasons those interest costs are soaring. For one thing, interest rates are high and heading higher. But the sheer size of the debt is also growing.
This year, debt held by the public will be 98% of GDP. In 20 years, it will be 144% of GDP, and by 2053 it will be 181% of GDP.
That would exceed “any previously recorded level,” CBO said, summing the situation up as “a challenging fiscal outlook.
For an economy estimated to have a GDP of 79.5 trillion in 2053, that means Uncle Sam’s debt would be nearly $144 trillion.
Much of the fiscal pain seems baked into the equation, largely because of an aging population.
About 20% of the population will collect a Social Security check this year, but that will rise to 25% by 2053. In dollar terms, that means spending will rise from $1.3 trillion this year to $4.9 trillion in 2053.
The analysts said another drag on the budget is projected climate change.
While warming will help some areas of the economy, it will be an overall drain. CBO said gross domestic product will be a full percentage point less in 2053 than it would have been without factoring in climate issues, or about $800 billion when calculated in 2053 dollars.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.