The United States deficit — relative to the economy’s size — is set to soar past World War II levels by the 2030s, if current laws remain in place.
This is according to an annual report from the nonpartisan U.S. Congressional Budget Office (CBO) that was released this week. Each year the CBO releases “projections of what federal spending, revenues, deficits, and debt would be for the next 30 years if current laws generally did not change,” according to the report.
In its report, the CBO predicts that by the end of the next decade the national debt will be nearly 100% of the gross domestic product, and will reach 152% of the GDP in 30 years (by 2048).
The deficit is projected to rise because mandatory government spending on Social Security and health care programs like Medicare are expected to rise with the aging of the Baby Boomer generation, and increased life expectancy, CBO says. And notably, although other mandatory spending and discretionary spending are expected to go down (in relation to the GDP), mandatory spending on Social Security and programs like Medicare “would be only partially offset by declining spending for other programs.”
The GOP tax bill (the Tax Cuts and Jobs Act, enacted in 2017) permanently slashed the corporate tax rate from 35% to 21%, and also handed $1.1 trillion in cuts to individuals through reduced income taxes and cuts for “pass through” small businesses, which expire at the end of 2025. Thus, in terms of revenue, the CBO predicts that it will “be roughly flat over the next few years relative to GDP, rise slowly, and then jump in 2026,” when some of the tax cuts expire.
“Thereafter, revenues would continue to rise relative to the size of the economy—although they would not keep pace with growth in spending,” the CBO report explains. “The projected growth in revenues is largely attributable to increases in individual income tax receipts.”
However, it’s unclear if those tax cuts will expire at the end of 2025. As Reuters points out, some members of Congress are pushing to make the individual and small business tax cuts permanent.
So what does this mean for the future of the U.S. Economy — if, of course, laws remain unchanged? The CBO’s outlook isn’t particularly reassuring: It reports that the growing federal debt is likely to hurt the economy, reduce long-term national saving and income, and increase the government’s interest costs. It also increases the likelihood of a financial crisis and a lack of money for Congress to respond to “unforeseen events.”
If laws remain unchanged, compared to the CBO’s predictions last year, this year’s report shows the debt will be higher up until 2041, but lower after that compared to 2017’s 30-year predictions. And that increase in pre-2041 debt comes largely from the tax bill, and the spending planned in the Bipartisan Budget Act of 2018 and the 2018 Consolidated Appropriations Act.