Rising Debt

The Congressional Budget Office reports:

The long-term outlook for the federal budget has changed little since last year, according to CBO’s projections. If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to the economy’s annual output, or gross domestic product (GDP), over the next few years, CBO projects. After that, however, growing budget deficits—caused mainly by the aging of the population and rising health care costs—would push debt back to, and then above, its current high level. The deficit would grow from less than 3 percent of GDP this year to more than 6 percent in 2040. At that point, 25 years from now, federal debt held by the public would exceed 100 percent of GDP. (Federal debt is now equivalent to about 74 percent of GDP, a higher percentage than at any point in U.S. history except a seven-year period around World War II.)

Moreover, in 2040, debt would still be on an upward path relative to the size of the economy. The rising debt could not be sustained indefinitely; the government’s creditors would eventually begin to doubt its ability to cut spending or raise revenues by enough to pay its debt obligations, forcing the government to pay much higher interest rates to borrow money.