By Rebecca Shabad - 06/16/15 10:01 AM EDT
U.S. debt will hit 101 percent of the nation’s economic output by 2039, the Congressional Budget Office (CBO) said in a report released Tuesday.
The CBO projects interest rates on 10-year Treasury notes to be 2.3 percent in the long term, compared to its previous projection of 2.5 percent.
Still, it highlights how quickly budget deficits are accumulating. In 25 years, debt as a share of gross domestic product (GDP) is expected to balloon to levels only previously seen during World War II.
By 2040, the CBO estimates the debt will equal 107 percent of GDP, due mostly to rising healthcare costs and an aging population.
Debt now stands at 74 percent of GDP. In last year’s projection, the budget office estimated that debt would hit 106 percent of GDP in 2039.
Federal spending on Social Security, Medicare, Medicaid, the Children’s Health Insurance Program and ObamaCare's insurance subsidies is expected to skyrocket by 2040 to a level more than twice the average over the last 50 years, the CBO warned.
“The harmful effects that such large debt would have on the economy would worsen the budget outlook,” the report said. “At some point, investors would begin to doubt the government’s willingness or ability to meet its debt obligations, requiring it to pay much higher interest costs in order to continue borrowing money.”
The CBO said this could lead to a “fiscal crisis” that would present Congress with “extremely difficult choices.”
In March, the CBO projected the shortfall for fiscal 2015, which ends in September, would increase slightly, to $486 billion, or 2.7 percent of GDP.
The agency did not provide updated nominal deficit projections in Tuesday’s report, but it projects the deficit by 2040 would equal 6.6 percent of GDP.
Updated at 10:24 a.m.