Gene Epstein warns in the latest Barron’s that analysts at the nonpartisan Congressional Budget Office “often behave like garden-variety bureaucrats,” taking at face value all assumptions built into the legislation they “score” for federal budget purposes.
Despite that “bureaucratically obligated” approach, Epstein concedes, CBO often presents an “alternative fiscal scenario” with more realistic assessments of where current policies will lead.
Right now, debt held by the public as a share of gross domestic product is at 73%, the highest percentage since shortly after World War II. But with historically low interest rates, the cost of servicing that debt requires the equivalent of 1.4% of GDP, against total federal outlays that account for 23.4% of GDP.
About half the debt is is foreign hands; so about half those payments of interest are transfers from U.S. taxpayers to foreign holders. But 1.4% of GDP cannot be called especially burdensome; and besides, those of us spending other people’s money might console ourselves with the thought that, according to the CBO’s alternative fiscal scenario, debt-servicing will account for a still-manageable 3.7% of GDP by 2022.
But by 2022, debt as a share of GDP will start to take off. By 2042, interest on the debt is estimated at 11.8% of GDP, and projected to rise further from there — well on its way to swamping the federal budget.
That’s why the CBO gently counsels against waiting to rein in the budget, observing that “a 10-year delay would reduce the well-being of all future generations.”