Budget office forecasts sharp spike in federal debt levels
Add Axios as your preferred source to
see more of our stories on Google.
Photo: Olivier Douliery/AFP via Getty Images
The federal government's budget deficit will soar in coming decades, after a brief reprieve this year from climbing deficits, according to a Congressional Budget Office (CBO) report on Wednesday.
Why it matters: The nonpartisan agency warns that the nation's fiscal position is set to become more challenging in the years ahead as deficits balloon and interest costs spike.
Details: The report builds on a separate release earlier this year that estimated this year's deficit would fall as COVID-related federal spending waned and revenues soared.
- The same won't be true in coming years, the CBO says: Deficits will average above 7% of GDP over the next three decades — twice the average over the past 50 years. That projected growth is largely driven by steeper interest costs.
- The average interest rate on federal debt will rise from 1.8% this year to 3.1% by by the end of the decade, projections show. By 2052, the CBO says it will hit 4.2%.
Worth noting: One giant caveat to the projections is the CBO's assumption that current laws and levels of spending remain unchanged for the next 30 years, which is unlikely to be the case.
By the end of this year, federal debt held by the public will fall to 98% of GDP — four percentage points lower than the 2021 forecast — and will likely dip next year, reflecting high inflation that's pushing up GDP rapidly.
- It's set to jump again in 2024 and hit a never-before-seen 107% of GDP — and continue to climb thereafter, eventually hitting 185% of GDP in 2052, the CBO says.
Between the lines: The CBO also released projections for the demographics of the U.S. population — which underpin its estimates for the economy and federal budget — over the next three decades.
- The U.S. population is estimated to expand at one-third the rate on average per year from 2022 to 2052 than it did between 1980 and 2021, when the population grew by 0.9%.
- By 2043, deaths will exceed births and population growth will be driven entirely by net immigration, the CBO says — one year earlier than last projected.
- The agency notes its projections around mortality are subject to the evolving effects of the pandemic, among other things. The overturn of Roe v. Wade has not yet figured into its projections for fertility, the CBO says.
