Sometime in the early 2030s, or sooner if the country falls into a recession or fights a big war, the federal debt will hit a new record, eclipsing the mark of 106 percent of gross domestic product that was set in 1946 as the government paid for World War II.
That level of debt, projected by the nonpartisan Congressional Budget Office Tuesday, isn’t itself an imminent threat to the country. After all, Japan has debt twice that high and has avoided a crisis so far.
The more immediate risk laid out in the CBO’s report, though, is the government having to spend more money on interest on the debt, leaving less for other priorities, such as infrastructure, law enforcement, and scientific research.
Today, the Treasury is servicing the debt for cheap, thanks to the low interest rates created by the 2008 financial crisis. The government spends about 1.6 percent of gross domestic product on interest, according to the CBO. That’s low by historical standards.
But the cost of servicing the debt could rise quickly as the economy improves and interest rates recover. Within a decade, the CBO sees Uncle Sam spending nearly twice as much, 3.1 percent, on interest costs.
That would be as much as the government has ever spent on interest. But the costs would be expected to continue rising, thanks both to higher interest rates and the borrowing the Treasury would need to do to make up the difference between taxes and revenue.
“The interest cost just exacerbates the problem,” said Paul Van de Water, an expert at the Center on Budget and Policy Priorities.
Soon, Congress and the president could have to face a choice: Borrow more just to pay the debt or cut defense programs or government services to keep room in the budget for interest payments.
Within the next 30 years, the government will be spending more on interest than on Social Security and more than on all defense and domestic programs combined, setting aside entitlement programs such as Medicare and food stamps.
But avoiding that scenario would be difficult. Just to keep the debt stable at today’s 78 percent of GDP, Congress would have to cut the deficit by $400 billion next year and every year thereafter, by reducing spending, raising taxes or both, the CBO estimated.
Congress isn’t close to implementing that kind of deficit reduction. Even the spending cuts that the conservative Freedom Caucus has tried to have included in recent budgets wouldn’t come close.
During this Congress, President Trump and the legislature have added to the fiscal gap, rather than closing it. Taking into account the Trump tax cuts and the bipartisan budget deals that increase spending, Congress boosted the annual deficit by about $285 billion in 2019, according to another CBO budget.
The fiscally conservative response to the report was to highlight the role that entitlement programs such as Social Security and Medicare are going to play in driving up spending as the Baby Boom generation continues to retire.
“Although Republicans and Democrats spend much of their time arguing over discretionary spending, most ignore mandatory spending, which includes entitlement programs like Medicaid, Medicare, and Social Security,” said Jason Pye, vice president of legislative affairs for FreedomWorks. “These programs are primary drivers of budget deficits and the national debt, and their contributions will continue to grow deficits and debt over time.”
Trump, however, has ruled out reforms to Medicare or Social Security, and congressional Republicans have steered clear of legislation to reduce spending on those politically popular programs.
Even so, Democrats responded to Tuesday’s report by blaming the tax cuts and warning that higher deficits presaged GOP attempts to cut retiree benefits.
“The long-term budget challenges described in today’s CBO report come as no surprise,” Kentucky Rep. John Yarmuth, the top Democrat on the House Budget Committee, told the Washington Examiner in a statement. “Yet the Republican answer of massive cuts to Medicare, Medicaid and other critical investments would leave seniors and hard-working families paying the price for their deficit-busting policies.”
