Romina Boccia and Dominik Lett
The Congressional Budget Office’s (CBO) latest 30‐year budget projections forecast rising debt, deficits, and interest costs. Rising spending on old‐age entitlement programs, primarily Medicare and Social Security, is mostly to blame. Legislators should act now to make gradual changes to achieve a sustainable budget policy and avert a future fiscal catastrophe.
The Fiscal Responsibility Act (FRA), which suspended the debt limit until 2025, has been championed by President Biden and House Speaker McCarthy as a major success. Its primary achievement is a far cry from adopting a sustainable fiscal policy. The deal averted a self‐imposed debt limit crisis but did so with a budget sleight of hand, as side deals and loose spending caps will undermine the FRA’s modest deficit reduction. Even assuming CBO’s charitable score of $1.5 trillion in deficit reduction from full implementation of the FRA, federal debt is still projected to exceed historic highs within this decade.
CBO warns that “high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook.” Lawmakers should heed CBO’s warnings and adopt a credible fiscal plan that will keep U.S. publicly held debt below the size of the economy. Annual spending is projected to grow from more than $6 trillion to $23 trillion (before adjusting for inflation) over the next 30 years. Without fiscal reforms, the government will accumulate $119 trillion in additional deficits and end 2053 with debt at 181 percent of GDP. To avoid more painful and likely more chaotic austerity in the future, policymakers should correct course by restraining entitlement spending growth today.
Here are key highlights from CBO’s 30‐year forecast report:
Debt grows to 181 percent of GDP by 2053
As a percentage of the country’s yearly economic output, federal public debt (the debt borrowed from credit markets) is currently 98 percent of GDP—about $96,000 for every person in America. In just six years, public debt is projected to surpass its all‐time World War II high of 106 percent. By 2033 (ten years from now), public debt will reach 115 percent of GDP. By 2053 (30 years from now), public debt is projected to surpass 180 percent of GDP. Such high debt levels have never before been recorded in U.S. history.
Interest costs triple to 6.7 percent of GDP by 2053
Between 2023 and 2053, interest costs are projected to grow from 2.5 percent to 6.7 percent of GDP. Interest costs are projected to grow more rapidly than most other budget categories. By 2047, net interest payments will be larger than all discretionary spending combined. In other words, interest costs will exceed combined government spending on defense, education, transportation, agriculture, energy, and more. For these projections, CBO assumes an average 4 percent interest rate on 10‐year Treasury notes—the projected rate for 2023 is 3.9 percent. Were interest rates just one point higher than projected in 2053, interest costs that year would rise to 8.4 percent of GDP—an increase of $1.4 trillion for that year.
Entitlement spending drives unsustainable growth in federal debt
Between 2023 and 2053, total federal spending will increase from 24.2 percent to 29.1 percent of GDP. That’s nearly one‐third higher than the 30‐year historical spending average (21 percent of GDP), spanning 1992–2022. Major entitlements, like Social Security and Medicare, are almost entirely responsible for non‐interest spending growth. In 2023, Social Security’s and Medicare’s combined contribution to the deficit was 2.1 percent of GDP. By 2053, their annual deficit contribution will be 5.4 percent of GDP. That’s more than half or 54 percent of the total deficit in 2053 due to spending on Social Security and Medicare (assuming additional borrowing past trust fund exhaustion and no other policy changes).
Obvious solutions to restrain excess entitlement spending growth include reducing retirement and health care subsidies for wealthier individuals, adjusting eligibility ages for old‐age entitlements with improvements in health and life span, and preserving current benefits by adjusting for inflation while stopping excess benefit growth.
Social Security’s Old‐Age and Survivors Insurance (OASI) and Medicare’s Part A Hospital Insurance (HI) trust funds—which are more akin to financial ledgers than funds with real assets—are both projected to exhaust their borrowing authority in less than 10 years. Medicare’s HI trust fund will be depleted by 2035 (other estimates place the exhaustion date at 2031). For Social Security’s OASI, scheduled benefits can continue uninterrupted up to 2033. After borrowing authority is exhausted, Medicare and Social Security benefits would be indiscriminately cut by 11 and 23 percent, respectively, if Congress fails to act. Waiting until the 11th hour will leave legislators with few options to avoid steep benefit cuts and harmful tax increases.
Congress and the President must work together to stabilize spending and debt
Given that debt is projected to grow by 85% (nearly doubling) over the next 30 years as a percentage of GDP, the savings from the 2023 debt limit deal are a drop in the bucket. The FRA adopted spending limits governing less than 30 percent of the federal budget. As Rep. Womack (R‑AR) points out, “70% of this whole federal budget is on autopilot right now.”
More than $8 trillion in savings will be necessary to stabilize the debt over the next 10 years. Political considerations over entitlement changes and how these will play out electorally have delayed inevitable reforms for far too long. Americans in and near retirement age are the most active at the voting booth, and they also stand to be hurt the most should Congress allow indiscriminate benefit cuts to take place over the next 10 years.
One promising proposal is to establish a BRAC‐like fiscal commission to empower an independent body of experts to put forth policies to stabilize the federal debt. A well‐designed commission will be composed of independent experts with diverse viewpoints, who are tasked with a clear goal, such as stabilizing the public debt at no more than 100% of GDP over the next 10 years, and whose recommendations will be self‐executing in Congress through a similar fast‐track mechanism that allowed the Base Realignment and Closure (BRAC) commission to be successful. A BRAC process can overcome political gridlock by providing legislators with cover from delegating entitlement reform to outside experts.
If policymakers continue to put serious fiscal reform on the back burner, the severity and scope of necessary reforms will grow. High and rising debt causes a significant drag on the economy and threatens America’s fiscal and economic future. Delay is costly and risky. Congress and the President should act soon.