Yesterday, the nonpartisan Congressional Budget Office (CBO) released its Long-Term Budget Outlook, which offers a look at the nation’s fiscal health through 2053. The report highlights the structural misalignment in the country’s budget and the resulting unsustainable fiscal trajectory. Here are six key takeaways from CBO’s latest projections.
- The national debt will nearly double in size by 2053. Debt held by the public equaled 97 percent of gross domestic product (GDP) at the end of fiscal year 2022. Under current law, CBO projects that ratio will continue to climb — reaching 181 percent of GDP in 2053.
- The mismatch between revenues and spending will continue to grow. CBO projects that outlays will climb from 24.2 percent of GDP in 2023 to 29.1 percent in 2053. CBO also projects that revenues will rise slightly over the next 30 years relative to the size of the economy, but at a slower pace, reaching 19.1 percent of GDP in 2053.
- Social Security and Medicare will drive the growth in programmatic spending. The aging population and rising healthcare costs will cause spending on Social Security and federal healthcare programs, primarily comprised of Medicare, to continue climbing over the next 30 years. Federal spending on Medicare will increase from 3.1 percent of GDP in 2023 to 5.5 percent by 2053, while outlays for Social Security will climb from 5.1 percent of GDP to 6.2 percent over that period.
- Federal revenues won’t keep pace with rising spending. CBO projects that total federal receipts will rise by less than 1 percentage point of GDP over the next 30 years — from 18.4 percent in 2023 to 19.1 percent in 2053. Receipts from individual income taxes, which account for over half of federal revenues — are projected to moderate in the coming years, falling from 9.6 percent of GDP in 2023 to 8.8 percent in 2025, before rising again after 2025 because of the scheduled expiration of some provisions of the 2017 Tax Cuts and Jobs Act.
- Interest rates, on average, are projected to gradually rise over the next 30 years. In their effort to fight inflation, the Federal Reserve raised the federal funds rate 10 times since March 2022. As a result, the average interest rate on federal debt held by the public rose — that rate was 2.1 percent in 2022 and is projected to reach 2.7 percent in 2023. Furthermore, CBO projects that the average interest rate on such debt will grow slowly over the next several years as existing debt matures, some of which may be refinanced at a higher rate. By the end of the projection period, the average interest rate on federal debt may reach 4.0 percent.
- The accumulation of federal debt and rising interest rates will cause borrowing costs to rise. In CBO’s projections, interest costs would rise from 1.9 percent of GDP in 2022 to 3.2 percent in 2030, which would be the highest since 1940, the first year for which such data were reported. Interest costs would continue climbing over the following decades, reaching 6.7 percent of GDP by 2053. At that point, interest costs on the federal debt would account for 35 percent of federal revenues.
The nation is on an unsustainable fiscal path, driven by the mismatch between the government’s commitments and its revenues. Furthermore, the accumulation of federal debt and relatively high interest rates will push the government’s borrowing costs increasingly higher — crowding out investments in other priorities. Policymakers should work together to establish a positive fiscal future for the United States.