New year, same fiscal warnings. The Congressional Budget Office has released their annual long-term budget outlook for 2017 and, likely to nobody’s surprise, the results are eerily similar to their previous predictions.
In the new report, CBO estimates that the federal debt will reach 150% of GDP by 2047, nearly doubling the 77% of GDP that it is at currently. The main driver behind this massive increase is the growth of the deficit. With the growth of retirees trending upward, the outlays for Social Security and Medicare are projected to vastly outpace the government’s revenues. This—in combination with the growing costs of healthcare—will only make the problem worse for the U.S economy.
Though these projections are similar to the numbers from the July 2016 report, their estimates this year have a slightly more dismal outlook. They now project debt in 2046, measured as a share of GDP, to be 5 percentage points higher than they did in last year’s estimate.
In addition, CBO predicts that the growth of federal debt will reduce federal savings and increase the cost of interest on the debt—forcing more pressure on other parts of the budget. CBO points to two potential problems with accumulating high debt. First, they predict it will lead to a decreased ability to respond to problems both domestically and internationally. Additionally, it may lead to a greater chance of a fiscal crisis because investors will be unwilling to finance federal borrowing.
There is uncertainty with these projections, of course. They are directly related to the labor force participation rate, growth of productivity, interest rates on the debt, and costs of mandatory spending. Any large changes to these parts of the economy will result in different outlooks—which, depending on the circumstances, could be a good or bad thing.
In order for the government to get spending under control, there will have to be massive changes to political habits. If lawmakers aimed to decrease the debt to equal 40% of GDP by 2047—which is the 50-year average—they would have to cut non-interest spending by 15%. Even more frightening, if politicians want to keep debt at the current levels of 77% of GDP, they would still have to cut by 9%, or $1,100 per person. For a federal government that continues to grow year after year, this is a tall order.
Currently, the United States is headed down a road of fiscal insolvency. If changes aren’t made, the likelihood of an economic crisis grows exponentially. CBO has been warning Congress for years to take spending cuts seriously and only a few Members have taken action toward change. It is going to take some serious leadership to attempt to shrink the budget, but as CBO warns again, it must be done before we face severe problems not too far down the road.