The 2020 Long-Term Budget Outlook

After 2030, mandatory spending continues to increase faster than economic output, reaching 16.6 percent of GDP in 2040 and 17.5 percent in 2050, whereas discretionary spending is assumed to remain roughly constant as a share of GDP throughout the period. Revenues also rise after 2030 (to 18.6 percent of GDP in 2050), although not as quickly as mandatory spending. Driving that increase in revenues is real bracket creep (the process in which an ever-larger proportion of income becomes subject to higher tax rates as income rises faster than inflation).

As a result of those developments, primary deficits are projected to increase to 4.1 percent of GDP in 2040 and 4.5 percent by 2050 (see Figure 4[7]). In CBO’s projections, rising federal debt and higher interest rates combine to nearly quadruple net outlays for interest from 2.2 percent of GDP in 2030 to 8.1 percent in 2050, adding substantially to projected deficits.

Figure 4.

Total Deficits, Primary Deficits, and Net Interest

Percentage of Gross Domestic Product

Net spending for interest rises rapidly and accounts for most of the growth in total deficits in the last two decades of the projection period.

Source: Congressional Budget Office.

Primary deficits or surpluses exclude net spending for interest.

Consequences of High and Rising Federal Debt

If federal debt as a percentage of GDP continued to rise at the pace that CBO projects it would under current law, in the long term the economy would be affected in two significant ways:

  • That debt path would raise borrowing costs, reduce business investment, and slow the growth of economic output over time,7 and
  • Rising interest costs associated with that debt would increase interest payments to foreign holders of U.S. debt and thus reduce U.S. national income.

Persistently rising debt as a percentage of GDP would also pose significant risks to the fiscal and economic outlook, although financial markets currently do not reflect those concerns. In particular, that debt path would have these economic and financial effects:

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