Legislative and economic changes have improved the federal government’s short-term deficit, according to a new outlook from the Congressional Budget Office.
However, the federal deficit is still on pace to hit almost $1 trillion within the next 10 years and the nation’s accumulated debt is never expected to return to pre-recession levels.
Debt held by the public is projected to reach 78.7 percent of GDP by 2025, up from 74.1 percent in 2014 — and more than double the level it was before the economic downturn. Federal debt as a percentage of GDP in 2014 is three times higher than it was four decades ago — and at a level not seen since 1950.
A previous long-term report by the Congressional Budget Office showed debt could reach 245 percent of GDP by 2050 — meaning if two years of the nation’s economic growth were entirely devoted to paying off creditors, it still wouldn’t be enough to wipe out the debt.
Federal debt held by the public peaked at 106 percent of GDP in 1946, as the country was recovering from World War II. Debt levels then recovered as the economy improved. In the past, debt has always fallen after a crisis caused it to spike. The Civil War and World War I also caused debt spikes, but recoveries followed.
The CBO’s projections show no federal debt recovery is expected in the aftermath of the Great Recession. As recently as 2007, federal debt held by the public was only 35 percent of GDP.
After World War II, debt eventually fell to 23 percent of GDP in 1974. In contrast, CBO projections expect federal debt to surpass the World War II peak in 2030.
Federal debt isn’t just a scary number. It represents obligations that have to eventually be paid off through higher taxes or reduced benefits — and the longer it takes for the problem to be addressed, the more sudden and disruptive such changes will have to be.
