Over the next 30 years, the annual shortfall between what Washington spends on federal programs and collects in tax revenue — the gap is known as the deficit — is expected to fall as a share of the economy by 2027, then start to grow again, and by 2053 reaching levels not seen since World War II.
The annual deficit increases the federal debt held by the public, and the CBO expects the debt to reach 107 percent of the nation’s gross domestic product, a measure of economic output, by 2029 — surpassing the historic high. The debt is expected to continue to grow as a share of GDP to 181 percent by 2053.
The forecasts reflect a range of assumptions about the strength of the US economy, uncertainty around interest rates, the state of the labor force and the government’s ongoing struggle to curb inflation. They also represent a meager upgrade from the CBO’s last forecast, issued in July 2022, which the watchdog partly attributed to the passage of the Fiscal Responsibility Act. The agreement, reached between President Biden and House Speaker Kevin McCarthy (R-Calif.), limits federal spending in exchange for suspending the debt ceiling until 2025.
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But the CBO still raised “significant risks” to the nation’s long-term fiscal climate, while cautioning that its predictions depend on Congress passing the current law as written. Even now, lawmakers openly admit they hope to flout the spending limits they just passed — with Republicans already looking to boost defense and Democrats eager to boost health, education and welfare programs.
GOP leaders, meanwhile, have made clear they hope to extend a set of tax cuts for businesses and individuals that they first secured under President Donald Trump in 2017. Those tax cuts are set to begin expiring in two years, adding to what the CBO described as a “significant source” of new federal revenue growth in the coming decades — unless lawmakers choose to put them back in place.
Taken together, the CBO report underscores the complicated calculations on the horizon for American policymakers, who must grapple with the reality that any significant improvement in the nation’s economy may come at the expense of their own agendas.
In general, budget hawks see a stubbornly high federal debt as a drag on the economy and a threat to the government’s fiscal health and national security. In its report, the CBO warned that an imbalance that consistently exceeds the nation’s annual output could slow future growth while making it more expensive for the United States to service debt it owes to foreign entities. Other experts, however, take a less rigid view, arguing in part that extreme efforts to cut costs can also hurt the economy and workers.
Still, Republicans took control of the House in January and immediately began an effort to cut federal spending by hundreds of billions of dollars. For months, McCarthy and his allies stalled an effort to raise the debt ceiling — the legal maximum the country can borrow to pay its bills — in an effort to force Biden to accept huge spending cuts. The move brought the government within days of its first default, which could have tipped the economy into recession.
The resulting agreement, passed in June, largely preserved spending at existing levels, capping agencies’ future budgets at 1 percent growth through 2025. McCarthy and Biden also agreed to a set of nonbinding spending targets for the rest of the decade, which could contribute to a total savings of $1.5 trillion under the law, if Congress sticks to the deal.
In its forecast Wednesday, the CBO attributed some of the nation’s persistent fiscal problems to “persistently large” deficits, which could cause interest costs to boom as well. The country also faces rising health care and pension costs stemming from an aging population, two issues that Democrats and Republicans did not address as part of the recent spending deal.
But the CBO noted that the government’s pension programs — Social Security and Medicare — still face the rapidly approaching prospect of insolvency unless Congress reevaluates the way they are paid for or cuts benefits. The trust funds for elderly pension benefits and hospital care could be exhausted by 2032 and 2035, respectively, the CBO warned again.