The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget

If current laws governing taxes and spending generally remained unchanged, the federal budget deficit would nearly double in relation to gross domestic product (GDP) over the next 30 years, driving up federal debt, the Congressional Budget Office projects. In CBO’s extended baseline projections, debt held by the public rises from 98 percent of GDP in 2023 to 181 percent of GDP in 2053—exceeding any previously recorded level and on track to increase further. Those projections are not predictions of budgetary outcomes; rather, they give lawmakers a point of comparison from which to measure the effects of policy options or proposed legislation.

Economic conditions that differed from those CBO projects and fiscal policy that differed from current law could yield noticeably different results. To show how changes in economic conditions or in current law might affect budgetary and economic outcomes, CBO analyzed eight scenarios that differ from those underlying the agency’s long-term baseline projections—six that vary economic outcomes, one that varies budgetary outcomes, and one that limits Social Security benefits.

• If the productivity of labor and capital in the nonfarm business sector grew 0.5 percentage points per year faster or slower than CBO projects, federal debt held by the public in 2053 would be 137 percent of GDP or 228 percent of GDP, respectively.
• If the average interest rate on federal debt was above or below the baseline projection by an amount that started at 5 basis points in 2023 and changed by that amount in each year thereafter, federal debt held by the public in 2053 would be 231 percent of GDP or 143 percent of GDP, respectively. (A basis point is one-hundredth of a percentage point.)
• If government borrowing reduced private investment by twice as much as it does in CBO’s long-term projections or had no effect on that investment, federal debt held by the public in 2053 would exceed 250 percent of GDP or would be 145 percent of GDP, respectively.
• If, between 2023 and 2053, discretionary spending and revenues were at their 30-year historical averages as a percentage of GDP, then federal debt held by the public in 2053 would exceed 250 percent of GDP. Under that scenario, discretionary spending would equal 7.1 percent of GDP and revenues would equal 17.2 percent of GDP in every year, 1.4 percentage points more and 1.2 percentage points less, respectively, than they average in CBO’s extended baseline projections.
• If Social Security benefits were limited to the amounts payable from dedicated funding sources after the combined trust funds are exhausted (that is, their balances reach zero) in fiscal year 2033, federal debt held by the public in 2053 would be 132 percent of GDP.

CBO’s long-term budget and economic projections are subject to significant uncertainty—particularly as debt measured as a percentage of GDP rises to levels far beyond historical experience. Employing its usual models, CBO projects that debt would exceed 250 percent of GDP in the later years of the projection period under some of the scenarios the agency examined. Because of the significant uncertainty about the effects that such high levels of debt could have on the economy, CBO only reports specific economic or budgetary outcomes when debt is below that threshold. CBO does not interpret debt exceeding 250 percent of GDP as having reached a tipping point because the agency cannot predict with any confidence whether or when abrupt macroeconomic changes might occur in response to the amount and trajectory of federal debt.