CBO: National debt could be twice the size of GDP by 2048

CBO: National debt could be twice the size of GDP by 2048

The amount of debt the federal government owes could be double the size of the entire U.S. economy in the next 30 years, according to a new report from the Congressional Budget Office (CBO).

Debt would surpass an unprecedented 200 percent of gross domestic product (GDP) by 2048 under any of three scenarios explored by the CBO in its report released Wednesday, while the nation's economy would be smaller than under current projections.

The report builds on the CBO's regular budget outlook published in June, which projected that the national debt would rise from its current rate of 78 percent of GDP to 118 percent in 2038 and 152 percent by 2048 — well above the historical peak of nearly 119 percent after World War II.

ADVERTISEMENT
That budget outlook was based on the assumption that some unpopular provisions in the GOP tax law passed in December would remain in place, alongside several other unpopular measures.

For example, even though it's unlikely that Congress will allow individual tax cuts to expire in 2026 as currently planned — or let restrictive spending caps take effect in 2020 — the CBO's June outlook had to assume those things would happen since they are the laws on the books.

Wednesday's CBO report took a different approach, assuming that current policies would not expire. It laid out three alternative scenarios.

In the first scenario, the GOP tax cuts remain permanent, the spending path set in a bipartisan deal earlier this year remains in place, and certain taxes delayed by the Affordable Care Act are taken off the table. It also assumes Congress will continue its recent pace of emergency spending.

In that situation, debt would grow to 148 percent of GDP by 2038, and hit 210 percent a decade later.

But the CBO also noted that as the economy grows and inflation takes its toll, politicians act to ensure that most people aren't pushed into higher tax brackets.

It modeled two additional scenarios assuming that Congress would adjust the tax brackets to keep revenues aligned with historical levels, starting either immediately or in 10 years.

In those cases, GDP would grow to 151 percent and 165 percent of GDP by 2038, depending on how soon Congress acted. By 2048, debt would reach 230 percent and 260 percent in those two scenarios.

CBO said the debt levels could potentially be even higher, but the unprecedented amount of debt could affect the economy in ways that are difficult to model.

“Debt at these levels would have a severe effect on the economy, restraining growth over the long term," said Michael A. Peterson, who heads the budget-watching Peter G. Peterson Foundation.

"In fact, CBO calculates that 20 years from now, real GNP per person would be lower by $1,000 per person if current policies were extended. So the costs may not be apparent now, but American families will feel the impact if we don’t get our fiscal house in order," he added.