The federal debt is projected to almost double to 202% of gross domestic product by 2051, the Congressional Budget Office said Thursday, reflecting rising costs for healthcare and debt service.
The U.S. economy is projected to grow 1.8% a year during the next three decades, up from the 1.6% forecast the nonpartisan agency made in September, as the CBO now expects a smaller impact from the coronavirus pandemic. Growth averaged 3.1% a year from 1951 through 2020, the CBO said.
The federal debt is projected to be 102% of the gross domestic product in 2021. It has exceeded that level only twice before in U.S. history, in 1945 and 1946, following a surge in federal spending as a result of World War II.
The forecasts don’t take into account the $1.9 trillion in federal spending proposed by President Biden and backed by Democrats, who narrowly control the House and Senate. Democrats say the measure is needed to ease pain from the business closures and job losses caused by the pandemic and related restrictions on economic activity.
Congressional Republicans, meanwhile, object to the size of the stimulus package and have pointed to growing budget deficits and debt as a reason to keep spending in check as they argue the economy is already poised for stronger growth.
Budget deficits will widen to 13.3% of GDP in 2051, from 5.7% in 2031, driven largely by increasing costs of servicing the debt, the CBO said. Net spending on interest will triple relative to GDP in the two decades leading up to 2051, and spending on programs such as Social Security and Medicare will also rise.
Weak federal revenue is also expected to contribute to a widening budget gap, the CBO said. After declining to 16% percent in 2021 from 16.3% in 2020, total revenues as a share of GDP are projected to reach 17% in 2025.
The projections offered Thursday are an extension of forecasts CBO released last month for the next decade, which showed federal debt is expected to rise to a record 107% of economic output by 2031, from 100% of GDP in the last fiscal year ended Sept. 30.
While federal budget deficits were high and rising before last year, they have grown significantly as a result of the economic disruption caused by the coronavirus pandemic and the trillions of dollars of economic relief passed during former President Donald Trump’s administration.
Net interest costs as a share of GDP will average 1.6% over the next decade, the CBO said, well below the 50-year average. But then they are projected to rise over the following two decades, reaching 8.6% by 2051.
The CBO cautioned that its long-term budget forecasts are subject to greater uncertainty than usual because of the pandemic and could be altered by unexpected changes in demographics, healthcare or the economy.
Administration officials, including Treasury Secretary Janet Yellen, have argued that projected low debt costs make it more affordable for Congress to borrow more now to support the U.S. economy’s recovery. They say that borrowing more now could propel a faster recovery, which could improve the country’s fiscal health.
Some money managers, meanwhile, have grown concerned that stimulus measures will lead to a spike in inflation and erode the value of bond returns. The yield on the benchmark 10-year Treasury note, which influences borrowing costs across the economy, has already risen to levels not seen since the start of the pandemic.
The CBO projected that yields on 10-year Treasurys will average 1.6% from 2021 to 2025 and 3% from 2026 to 2031, before rising steadily to 4.9% by 2051.
Write to John McCormick at [email protected]
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