The Congressional Budget Office on Tuesday warned that the national debt is racing well ahead of prior projections and could reach an historic 141 percent of the overall economy by 2046.
The non-partisan budget agency has been signaling alarm about the long-term fiscal picture of the government, even as the economy has improved and the annual budget revenue shortfall has tapered off considerably after the worst of the Great Recession.
But while Hillary Clinton and Donald Trump, the presumptive Democratic and Republican presidential candidates, have been giving short shrift to longer-term budget problems, the latest CBO report provides added cause for concern.
CBO’s latest long-term budget outlook shows the federal debt’s share of the overall economy will steadily rise from 75 percent of GDP in the wake of the financial crisis to 86 percent in 2026 and 141 percent in 2046 — a level that would surpass the historical peak of 106 percent registered shortly after World War II.
The picture looks worse than it did a year ago, when CBO forecast the long-term debt through 2040 at a level that was 15 percent below the latest projection. Much of the increase in the projected debt stems from a decline in projected tax revenues as a result of the congressional spending deal for fiscal 2016. The CBO outlook was also affected by a downward revision in projected economic growth.
The CBO acknowledged that its forecast is clouded by a number of factors, including the labor market, economic productivity, interest rates and health care costs. Nevertheless, it said that the trajectory of the federal debt over the next three decades is troublesome: “Taking all factors into account, CBO concludes that despite the considerable uncertainty of long-term projections, debt as a percentage of GDP would probably be greater — in all likelihood, much greater — than it is today if current laws remained generally unchanged.”
Robert Bixby, executive director of the Concord Coalition, a budget watchdog group, said in an interview Tuesday that the latest CBO projections are less shocking than the refusal of Clinton and Trump to address the long-term challenges of containing government costs and averting future financial crises.
“It’s something that the next president is going to have to deal with, and yet they’re not preparing the groundwork for that at all,” he said. “They’re not even talking about it. And it’s the biggest disconnect in the campaign. It’s a major problem that is going to explode on their watch, and they’re not even talking about it.”
On the contrary, Trump is promising massive income and corporate tax cuts if he is elected president that could boost the national debt by $11.5 trillion over the coming decade, according to a recent tally by the Committee for a Responsible Federal Budget. Clinton, meanwhile, has touted at least $1.5 trillion in new spending on health care and other programs over the coming decade, although much of that would be offset by $1.2 trillion of proposed tax increases.
That doesn't include Clinton's new promises made over the past week as she sought to woo Sen. Bernie Sanders of Vermont and millions of his liberal supporters. Clinton upped the ante in new spending pledges with promises of expanding Medicare to people 55 and over and free public college education for middle and lower class families. She also added community-based primary care centers in rural areas to her spending list.
Although it would be less expensive than Sanders’s free college tuition proposal, Clinton’s modified plan might would cost the federal government and states up to $400 billion over 10 years, analysts say.
Clinton proposes to spend an additional $40 billion on the community health care centers over the coming decade, although campaign aides told reporters last weekend that they are exploring offsetting cuts or savings.
As for the Medicare buy-in proposal, the cost to the government might prove to be relatively modest — perhaps $10 billion over a decade in administrative costs. That’s because individuals who choose to buy into the premier health care plan for seniors will be charged premiums and other related charges, according to analysts, in addition to any payroll charges.
Bixby said that while Clinton deserves credit for promising to offset much of her new spending with tax increases or savings from other programs, neither Clinton nor Trump are facing up to the challenges of an “unsustainable” long-term debt.
“With Hillary, there are a lot of new proposals and they are offset and that’s good,” he said. “But they don’t address the fact that that this budget already is on an unsustainable path. So it’s not as if paying for new proposals would do anything to make these new CBO numbers look any better.”
As for Trump, Bixby said, “He’s basically ignoring the problem” by calling for major tax cuts without proposing ways to offset the revenue loss.
According to the CBO, the key factors driving the long-term outlook for the debt are familiar ones: Government spending on Social Security, Medicare and other major health care programs will continue to mount as baby boomers age and their life expectancy is extended. At the same time, health care costs per beneficiary are expected to rise more quickly than the overall growth in the economy.
Within 30 years, projected spending for entitlement programs for people over 65 years of age will account for roughly half of all federal spending other than interest on the debt, according to CBO.
According to the CBO analysis, mounting debt over the coming decades will “hurt the economy and constrain future budget policy.” Left unabated, CBO said, the projected debt would:
- Reduce national saving and income in the long term.
- Increase the government’s interest costs as the Treasury borrows more and more
- Put more pressure on the rest of the budget
- Limit lawmakers’ ability to respond to unforeseen events such as natural disasters or the outbreak of war
- And increase the likelihood of another fiscal crisis.