The federal government is headed for deep fiscal pain, the Congressional Budget Office said Tuesday. Just how much depends on what Congress does.
If left on autopilot, spending will soar over the next few decades, rising from about 20% of the economy now to European levels of nearly 30% by 2049. The government’s debt will reach record levels, when measured against the gross domestic product.
And that’s a good scenario, the CBO said.
If, as lawmakers are likely to attempt, Congress extends the Trump tax cuts, deletes Obamacare taxes and erases automatic spending cuts written into the law, the situation gets worse.
“The prospect of such high and rising debt poses substantial risks for the nation and presents policymakers with significant challenges,” the CBO said in its “Long-Term Budget Outlook,” an annual checkup of the government’s broad fiscal health.
This year’s bill of health actually shows a slight improvement from the 2018 version.
Last year, the CBO said the best estimate for the government’s debt in 2048 was 152% of GDP. Now, CBO says it’ll likely be just 141% — still a record, but better thanks chiefly to different assumptions such as better interest rates and smaller emergency disaster payments.
The CBO has been sounding alarms for more than a decade, dating to when the country’s debt was just 35% of GDP in 2007.
Since then, the Great Recession and the Obama stimulus, the GOP’s 2017 tax cuts, Congress’s impulse to increase spending and the aging of the population — and its attendant higher costs for programs such as Social Security and Medicare — have sent the debt soaring to 78% of GDP by the end of this year.
It will nearly double over the next 30 years to 141%, the CBO said, citing its most likely scenario.
But there’s vast uncertainty.
If interest rates are a percentage point lower on average over the next 30 years, debt would be 107% of GDP at the end of that time. If interest rates were a point higher than projected, debt would be 199%, CBO said.
“The upshot is that even if productivity growth or interest rates differed in meaningful ways from our projections in the direction that would tend to reduce deficits, debt several decades from now would probably be much higher than it is today if current laws generally did not change,” said Phillip L. Swagel, the CBO’s new director.
To keep debt at current levels, Congress would have to increase taxes by 11% or cut spending by a staggering 10% in the future.
That tax increase would amount to $1,400 for a middle-income family.
If lawmakers waited a decade before making changes, the tax increases or spending cuts would be much bigger — somewhere on the order of 15%.
The Peterson Foundation, a fiscal watchdog, said tucked inside the numbers is other grim news. Next year, interest payments on the debt will total $455 billion — or more than half the annual deficit total in 2020.
Those warnings have not been able to persuade Capitol Hill, where both parties are interested in boosting spending on their favored projects — Republicans on the Pentagon, and Democrats on domestic programs and entitlements such as Social Security.
Democrats do want to see tax increases, which could help improve the bottom line — but Republicans have vowed to oppose those efforts.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said the new numbers should be an invitation to change all that, particularly at a time when the economy’s strong enough to bear adjustments.
“But instead of taking advantage of our economic strength to slow rising debt, policymakers have made it worse by cutting taxes and increasing spending,” she said. “Each day seems to bring a new trillion-dollar idea but few ways to pay for the cost.”
FreedomWorks, a conservative-leaning activist group, called the debt “the greatest existential threat facing the United States today” and said it’s time to tackle the entitlement programs that are driving the growing imbalance.