September 20, 2018
In June, CBO released The 2018 Long-Term Budget Outlook, the latest installment of an annual report describing the agency’s projections of federal spending, revenues, deficits, and debt over the next 30 years. This week, CBO is publishing two blog posts to share key excerpts from the report. Today’s post presents some of the report’s key takeaways. (CBO has also posted a series of slides about those long-term projections.)
- In CBO’s projections, the federal budget deficit, relative to the size of the economy, grows substantially over the next several years, stabilizes for a few years, and then grows again over the rest of the 30-year period, leading to federal debt held by the public that would approach 100 percent of gross domestic product (GDP) by the end of the next decade and 152 percent by 2048—compared with 78 percent now . Moreover, if lawmakers changed current laws to maintain certain policies now in place—preventing a significant increase in individual income taxes in 2026, for example—the result would be even larger increases in debt.
- The federal government’s net interest costs are projected to climb sharply as interest rates rise from their currently low levels and as debt accumulates. By the end of the projection period, such spending would almost quadruple as a percentage of GDP and would about equal spending for Social Security, currently the largest federal program.
- Noninterest spending is projected to rise from 19 percent of GDP in 2018 to 23 percent in 2048, mainly because of increases in spending for Social Security and the major health care programs (primarily Medicare). Much of the spending growth for Social Security and Medicare results from the aging of the population. Growth in spending for Medicare and the other major health care programs is also driven by rising health care costs per person.
- Revenues, in contrast, are projected to be roughly flat over the next few years relative to GDP, rise slowly, and then jump in 2026. Thereafter, revenues would continue to rise relative to the size of the economy—although they would not keep pace with growth in spending. The projected growth in revenues is largely attributable to increases in individual income tax receipts, stemming mostly from structural features of the tax system and from the scheduled expiration in 2026 of provisions of Public Law 115-97 (the major 2017 tax legislation, originally called the Tax Cuts and Jobs Act).
- Compared with last year’s projections, debt as a percentage of GDP is larger, but only modestly so, through 2041 and then lower thereafter. Deficits are higher as a percentage of GDP through 2025 and lower thereafter. That change is largely driven by changes in revenues and net interest costs. Revenues are initially lower as a share of GDP, but ultimately are higher because individual income taxes are now projected to grow more quickly as a result of provisions of Public Law 115-97.
- Large and growing federal debt over the coming decades would hurt the economy and constrain future budget policy. The amount of debt that is projected under the extended baseline would reduce national saving and income in the long term; increase the government’s interest costs, putting more pressure on the rest of the budget; limit lawmakers’ ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis. (In that event, investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates.)
Stephanie Hugie Barello is an analyst in CBO’s Health, Retirement, and Long-Term Analysis Division. These projections reflect the work of many analysts at CBO.