Presidential candidates, take note: Any ambitious plans to increase spending or cut taxes must account for the fact that our nation's budget is on an unsustainable path.
This timely warning comes from long-term projections released by the Congressional Budget Office, courtesy of the Concord Coalition.
"With the debt already projected to rise sharply in the coming decade, elected officials in Washington can't afford to become complacent about fiscal policy," said Robert L. Bixby, Concord's executive director. "The last thing they should be doing is pursuing new policies without credible plans to pay for them. Even that low standard of fiscal responsibility still leaves the debt on an unsustainable path."
The federal debt held by the public currently amounts to 78 percent of the gross domestic product (GDP), its highest level since shortly after World War II. Under current law, CBO projects that figure would rise to over 100 percent of GDP in 15 years and 144 percent by 2049.
This projection also assumes many of the recent income tax cuts will expire after 2025 and that appropriations spending is cut well below levels recently approved. Without those assumptions, the long-term outlook would be much worse, with debt rising to 219 percent of GDP by 2049.
The report warns, "The prospect of such high and rising debt poses substantial risks for the nation and presents policymakers with significant challenges."
Such high levels of public debt would reduce national savings and income, hurt economic growth, increase interest costs for businesses and the government itself, put increasing pressure on important federal programs, and limit the nation's ability to respond to new and unforeseen challenges.
The magnitude of the problem can be illustrated by CBO's estimate for what it would take to stabilize the level of debt over the next 30 years. To reach the same level of debt (78 percent of GDP) in 2049 as we have now, it would require a cut in spending, an increase in revenue, or some combination of those totaling 1.8 percent of GDP every year beginning in 2020. This would be about $400 billion of deficit reduction in that first year, an amount roughly the size of federal Medicaid spending and about 35 percent more than the government takes in through the entire corporate income tax.
The Long-Term Outlook not only shows the magnitude of the problem and the urgency for action, but it also provides a roadmap for the key issues policymakers must confront if they want to achieve better results.
Those factors include the aging U.S. population and rising health care costs. The government must spend more each year just to maintain current service levels for more beneficiaries of programs like Social Security and Medicare.
At the same time, health care costs grow more quickly than the economy. Tax collection will not keep pace with spending growth as the working-age population shrinks relative to the retiree population.
Demographic change also contributes to lower economic growth projections, which are driven by slower growth in the labor force and stagnant productivity. Over the coming decades, CBO projects labor force growth will be less than one-third of the past 50-year average as baby boomers retire, and productivity growth will be slightly below its average since 1950.
This means that achieving growth anywhere near past levels will require new policies that increase the size of the labor force and improve productivity.
Stronger economic growth would not be enough on its own to solve our long-term budget challenge but it would help.
"The CBO's new long-term projections are yet another reminder that the United States must pursue broad budget reforms to protect its future, including its economic strength and its position of global leadership," Bixby says.
Bixby added: "We must deal with the key drivers of future deficits. Current budget discussions focused only on annual appropriations levels-a part of the budget the CBO report shows is not projected to grow relative to the economy-are far too limited."
The Concord Coalition just released an issue guide for the 2020 presidential campaign focused on the long term challenges posed by the growing debt. The guide is intended to help voters ask how the candidates plan to put the nation on a more responsible fiscal path and to find out whether their plans are based on factual analysis.
"Those who seek the presidency next year or any other federal office should review these new projections carefully and tell the public-as specifically as possible-what they would do to put the budget on a more responsible course," Bixby said.