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

The Congressional Budget Office projects that if current laws governing revenues and spending generally remained unchanged, the federal budget deficit would increase significantly in relation to gross domestic product (GDP) over the next 30 years, driving up federal debt. Debt held by the public would soar from 99 percent of GDP in 2024 to 166 percent of GDP in 2054—exceeding any previously recorded level and on track to increase further. Those projections are not predictions of budgetary outcomes; rather, they give lawmakers a benchmark for measuring the effects of policy options or proposed legislation.

Economic conditions that differ from those that CBO projects and fiscal policy that differs from current law could yield noticeably different results. To show how changes in economic conditions or in fiscal policy might affect budgetary and economic outcomes, CBO analyzed eight scenarios that differ from those underlying the agency’s extended baseline—six that vary economic conditions and two that vary budgetary conditions.

• If the productivity of labor and capital in the nonfarm business sector grew 0.5 percentage points per year more quickly or more slowly than CBO projects, federal debt held by the public in 2054 would be 124 percent of GDP or 211 percent of GDP, respectively.
• If the average interest rate on federal debt was higher or lower than the baseline projection by an amount that started at 5 basis points in 2024 and changed by that amount in each year thereafter, federal debt held by the public in 2054 would be 217 percent of GDP or 129 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 2054 would exceed 250 percent of GDP or would be 130 percent of GDP, respectively.
• If, between 2024 and 2054, discretionary spending and revenues equaled their 30-year historical averages measured as a percentage of GDP, federal debt held by the public in 2054 would exceed 250 percent of GDP. Under that scenario, discretionary spending is set to 7.0 percent of GDP and revenues are set to 17.2 percent of GDP in every year—1.9 percentage points more and 1.0 percentage point less, respectively, than they average in CBO’s projections.
• If, between 2024 and 2054, fiscal policy was set to maintain federal debt held by the public at 99 percent of GDP (its level in fiscal year 2024), primary deficits (which exclude net outlays for interest) would average 0.4 percent of GDP over that period. Under that scenario, primary deficits are reduced each year by decreasing noninterest spending or increasing revenues relative to CBO’s extended baseline by an average of 1.9 percent of GDP. (Primary deficits could also be reduced through a combination of changes to spending and revenues that would have an equivalent effect.)

In this analysis, CBO reports specific economic or budgetary outcomes only for scenarios in which debt is less than 250 percent of GDP. That approach is not an indication that the agency considers that level of debt to be a fiscal tipping point. (CBO cannot predict with any confidence whether or when abrupt macroeconomic changes or sudden shifts in financial markets might occur in response to the amount and trajectory of federal debt.) Rather, assessing the economic effects of debt that exceeds 250 percent of GDP would require CBO to reevaluate the economic relationships in its current models. The agency’s long-term budget and economic projections are subject to significant uncertainty, and that uncertainty increases as projected debt expands far beyond historical experience, in part because of the potential economic effects of debt in that case.