If investment in capital goods declined, workers would, on average, have less capital to use in their jobs. As a result, they would be less productive, they would receive lower compensation, and they would thus be less inclined to work. Those effects would increase over time as federal borrowing grew. If federal borrowing declined, however, those effects would decrease. In CBO’s estimation, budgetary changes that began in 2025 and steadily reduced debt to 79 percent of GDP in 2050 (its value in 2019) would, all else being equal, boost economic growth each year by an average of about 0.2 percentage points compared with growth in the agency’s extended baseline projections. As a result, GDP would be 5.0 percent higher in 2050 than it is in the extended baseline projections, and GDP per person in 2050 would be about $4,600 higher (in 2019 dollars).

Rising Interest Payments. CBO projects a substantial increase in interest costs over the next 30 years, in part from a projected rise in interest rates. Because debt is already high, even moderate increases in interest rates would lead to significantly higher interest costs. Moreover, federal borrowing is projected to rise significantly, further driving up interest costs. That increase in interest costs would not happen immediately, however, because the lower interest rates associated with the pandemic and the Federal Reserve’s policy response to it would offset the effect from financing the rising amount of debt.

CBO expects interest rates to rise as the economy recovers and then continues to expand, particularly in the latter half of the coming decade. The agency expects the interest rate on 10-year Treasury notes to average 1.3 percent over the 2020–2025 period and 2.8 percent over the 2026–2030 period. Beyond 2030, the interest rate on 10-year Treasury notes is projected to rise steadily, reaching 4.8 percent by 2050. In CBO’s extended baseline projections, net outlays for interest grow from 1.6 percent of GDP in 2020 to 2.2 percent in 2030 and then continue to rise over the next two decades to more than 8 percent by 2050.