The Congressional Budget Office (CBO) today released its 2014 Long-Term Budget Outlook, detailing the budget picture for the next 75 years. The report shows debt rising as a share of the economy continuously after 2017, a trend which CBO describes as unsustainable over the long run.
Under the Extended Baseline Scenario (EBS), which assumes that policymakers allow temporary spending and tax provisions to expire and do not further increase deficits in the years ahead, debt held by the public will rise from 74 percent of Gross Domestic Product (GDP) in 2014 – a post-war record – to 108 percent by 2040, 147 percent by 2060, and 212 percent by 2085.
This dramatic rise in debt assumes policymakers act in a fiscally responsible manner. The Alternative Fiscal Scenario (AFS), which assumes that policymakers will increase spending and reduce taxes compared to current law, shows a steeper climb in debt – to 170 percent of GDP by 2040, and by our calculations to 330 percent by 2060, and 620 percent by 2085.
Despite legislation in recent years to raise revenue and reduce spending – particularly discretionary spending – the long-term debt situation remains far from solved. Health and retirement programs will continue to grow faster than the economy at a quicker pace than revenue growth, leading to growing deficits, rising interest costs, and ever-rising debt levels.
Policymakers should act quickly to put in place tax and entitlement reforms to put debt on a sustainable long-term path. The longer we wait to act, the more severe the consequences and the more painful the choices will be.
See the full paper below, or download it here.
Note: The paper's mention of the change in deficits from 2015 to 2024 has been corrected.
Correction: This paper originally stated that the Social Security trust fund is projected to be exhausted in 2033. The combined Social Security and Disability (OASDI) trust funds are actually projected to be exhausted two years earlier, in 2031.