Debt and deficits are going to explode in the next 30 years, CBO says
Government debt and budget deficits are both set to spiral higher in the coming three decades if current patterns hold, according to new projections released Thursday by the Congressional Budget Office.
The report warns that the rising debt and deficits risk another crisis.
"The prospect of such large and growing debt poses substantial risks for the nation and presents policymakers with significant challenges," it said.
Due largely to increases in Medicare and Social Security costs, the federal debt will reach 150 percent of gross domestic product in 2047, the CBO report said.
The total current debt held by the public of $14.3 trillion is 77 percent of GDP. The current total debt level of $18.8 trillion is about 101 percent of GDP (the CBO computes debt to GDP based on public debt). The debt-to-GDP ratio would rise to 89 percent in 2027, according to current projections.
In addition to booming debts, the office also said the budget deficit will more than triple from the projected 2.9 percent of GDP in 2017 to 9.8 percent in 2047. The deficit at the end of fiscal 2016 stood at $587 billion.
The rise would hurt prospects for growth, the report said.
"Large and growing federal debt over the coming decades would hurt the economy and constrain future budget policy," the CBO wrote.
The office cites rising interest rates as another of the main culprits for the increasing debt burden. The U.S. Federal Reserve has kept rates low since the financial crisis struck in 2008 but is on track to gradually hike rates over the coming year.
Rising deficits will add to the debt load because the government will be forced to borrow more at higher rates to cover expenses that will exceed revenues, the CBO said.
Mandatory spending excluding health care is actually projected to decline as a share of GDP, as is discretionary spending. Revenues are expected to grow as personal income rises.
To get the debt and deficit total more in line with historical averages, the CBO recommends the government cut spending and increase revenue. To get the process rolling, the government would have to come up with the equivalent of $620 billion in 2018.