Congressional Budget Office on Tuesday released its long-term budget outlook, and with it, a chart that should scare absolutely every American.
The following chart depicts the level of debt held by the public as a share of the economy since the George Washington administration. What it shows is that in the coming decades, the already historically high federal debt will enter unprecedented levels.
The United States has had many periods in history in which there have been significant short-term spikes in the debt, generally during war or economic duress. What we’ve never seen before, however, is debt as high for as long a time as what’s expected in the coming decades.
The current level of debt exceeds nearly every other time in history — the post Revolutionary War debt; the Civil War debt; and the debts that came with fighting World War II and the Great Depression.
The one time that debt has been higher was during World War II, but that was a spike that was tied to a specific event with a clear end date. The debt steadily fell after the war was over. At a time of peace and prosperity, we’re seeing deficits continue to increase, and debt is on track to exceed World War II and never look back.
“By the end of this year, federal debt held by the public is projected to equal 78 percent of gross domestic product (GDP)—its highest level since shortly after World War II,” the Congressional Budget Office explains. “If current laws generally remained unchanged, growing budget deficits would boost federal debt drastically over the next 30 years, the Congressional Budget Office projects. Debt would reach 92 percent of GDP by the end of the next decade and 144 percent by 2049 … That level of debt would be the highest in the nation’s history by far, and it would be on track to increase even more.”
Under an alternate, less optimistic, set of assumptions, debt could reach 219 percent of gross domestic product — or more than two years of U.S. economic output.
There is also a clear culprit for the rising debt.
“In CBO’s projections, that increase occurs because mandatory spending—in particular, outlays for Social Security and the major health care programs—and interest payments on federal debt grow faster than revenues,” the report said.
Congressional Budget Office warns that the longer politicians wait to act, the more severe the combination of tax increases and/or spending cuts would have to be to keep debt at a sustainable level.
If, for instance, policymakers wanted to immediately pass a debt reduction package to maintain the historically elevated debt levels we have today (78% of gross domestic product) into 2049, it would require $400 billion a year in annual deficit reduction over the next 30 years, in today’s dollars (the equivalent of the federal Medicaid budget). If they waited until 2030, they’d have to find $600 billion in deficit reduction each year.
Absent action, Congressional Budget Office warns, the “debt path would dampen economic output over time” and “rising interest costs associated with that debt would increase interest payments to foreign debt holders and thus reduce the income of U.S. households by increasing amounts.”
Left unchanged, Congressional Budget Office writes, the debt path would “pose significant risks to the fiscal and economic outlook.” Though, for now, financial markets continue to lend to the U.S. at low interest rates, the rising debt will, “Increase the risk of a fiscal crisis — that is, a situation in which the interest rate on federal debt rises abruptly because investors have lost confidence in the U.S. government’s fiscal position.”
Unfortunately, with this crisis staring policymakers in the face, we are as far as ever from addressing the problem.
On one side, Republicans have abandoned any semblance of even pretending to care about the federal debt now that Donald Trump is president. They’ve retreated to the typical Republican posture of voting for increases to military spending and tax cuts without offsetting spending reductions or long-term entitlement reforms. And 2020 Democratic candidates are not only ignoring the long-term problem, they are moving full speed ahead with plans requiring tens of trillions of dollars in new spending.
Be very afraid.
