Meeting Fiscal Goals Under CBO’s June 2024 Baseline

It would require nearly $10 trillion of deficit reduction to stabilize debt at its current share of the economy over the next decade, according to the Congressional Budget Office’s (CBO) June 2024 baseline. This is one of many possible fiscal goals policymakers could aim for as they work to address our unsustainably rising federal debt.

Under CBO’s current law baseline, federal debt held by the public is projected to rise from 99 percent of Gross Domestic Product (GDP) today to a record 106 percent by the end of Fiscal Year (FY) 2027 and 122 percent by the end of FY 2034. Preventing this rapid growth will require substantial deficit reduction – and setting a fiscal goal can help policymakers determine the magnitude of necessary savings.

While there is no one appropriate fiscal goal, lawmakers have a number of options to choose from to put the national debt on a sustainable path – each with their own benefits and drawbacks. Goals could focus on the size of the debt itself, on the size of annual deficits, or on other fiscal metrics – and could consider a number of reasonable time periods.

For example, holding the debt to the size of the economy would require $3.6 trillion of deficit reduction (including interest) over five years and $9.3 trillion over ten years. Reducing debt to 80 percent of GDP within a decade would require $17.5 trillion of deficit reduction, while keeping it to 110 percent of GDP would require $5.1 trillion. 

Balancing the budget by FY 2034 would require nearly $2.9 trillion of savings in that year alone, which we estimate would equate to nearly $17 trillion over a decade under a reasonable savings path. Achieving primary balance – so revenue covers all non-interest spending – would require roughly $8 trillion of ten-year savings under a reasonable path.

Savings Needed to Meet Various Fiscal Goals

Sources: Congressional Budget Office and Committee for a Responsible Federal Budget.
Notes: Figures include interest and are based on CBO’s June 2024 baseline update, which assumes certain one-time spending is extended. Removing this extension would reduce five-year savings targets by about $500 billion and ten-year savings targets by about $1.4 trillion.
*Assumes modified savings path of the CRFB Fiscal Blueprint for Reducing Debt and Inflation.
 

Importantly, these estimates are based on CBO’s June 2024 baseline which, due to budget conventions, assumes a significant amount of one-time spending is continued annually and grows with inflation. Removing this assumption would reduce all the necessary fiscal targets by $1.4 trillion over a decade. On the other hand, CBO’s baseline assumes trillions of dollars in tax cuts and other provisions expire at the end of 2025 as written into law, and that growth of discretionary appropriations is contained after the Fiscal Responsibility Act's caps expire. Under an alternative fiscal scenario, the above targets could be as much as $5.3 trillion larger.

While these goals may seem daunting, they can be achieved. The Peter G. Peterson Foundation recently released 7 plans from groups on the left, right and center, each featuring a combination of tax and spending changes that would put debt on a sustainable path. Four of the plans would bring debt below 100 percent of GDP within a decade, and six of the plans would do so by FY 2050. Five of the plans would put the budget on a clear path to long-term balance, and all seven plans would prevent deficits and debt from growing indefinitely as under current law. So too would The CRFB Fiscal Blueprint for Reducing Debt and Inflation, released in late 2022.

As these plans show, thoughtful deficit reduction can be self-reinforcing, not only by stemming borrowing directly but also by improving economic growth and holding down interest rates. 

As policymakers grapple with our current fiscal position, they should set a responsible fiscal goal and then work quickly to make the policy changes necessary to achieve that goal.