The Congressional Budget Office’s latest forecast makes a convincing case that fiscal complacency is now dangerous for the U.S. economy. CBO projects the federal government will borrow an additional $12.4 trillion over the next 10 years. At the end of 2028, the federal government will have outstanding debt of $28.7 trillion, or 96 percent of GDP. Ten years ago, federal debt was equal to 39 percent of GDP.
In fact, CBO’s official projection is an optimistic scenario. It assumes Congress will let many of the tax-cutting provisions enacted in the recently passed tax legislation expire after 2025. It also assumes, even more implausibly, that the caps on defense and nondefense appropriations for 2020 and 2021 contained in the Budget Control Act of 2011 will remain in place, thus forcing deep cuts in federal spending. However, Congress just enacted a bipartisan agreement to raise the caps in 2018 and 2019 by nearly $300 billion over that two-year period. If the tax cuts are made permanent, and if discretionary appropriations grow with the rate of inflation after 2019, then the budget deficit over the next decade would be $15 trillion instead of the $12.4 trillion contained in CBO’s baseline forecast. In 2028, the annual budget deficit would widen to 7.1 percent of GDP, while total federal debt would reach 105 percent of GDP.
CBO has not yet updated its long-term budget forecast, but when it does the projection will show federal debt exploding at an alarming rate, as population aging and health-care costs push entitlement spending up at a rapid pace. Last year, CBO projected that federal debt would reach 150 percent of GDP by 2047. An updated forecast will show federal debt reaching that level much sooner.