166 percent of GDP. That is where federal debt held by the public lands in 2054, according to the Congressional Budget Office’s long-term outlook, published March 20, 2024. The agency said it would be far beyond any previously recorded level and still on track to rise afterward.
The peak comes sooner than the end date suggests. In CBO’s projections, debt measured against the economy reaches its highest level ever in 2029, then keeps growing.
Where the deficits come from
The deficit climbs to 8.5 percent of GDP in 2054. CBO traces that to two things: rising interest costs and large, sustained primary deficits, which leave out net interest outlays. Given the forecast of low unemployment, the primary deficits are especially large. Over the next 30 years they average 0.6 percentage points of GDP more than they did over the past 50.
Spending rises too. Outlays reach 27.3 percent of GDP in 2054, driven by interest costs and by the major health care programs, Medicare above all. Revenues grow more slowly, ending at 18.8 percent of GDP as income growth lifts receipts from the individual income tax.
What mounting debt would do
CBO’s warning is plain. A debt load this size would slow economic growth and push up interest payments to foreign holders of U.S. debt. It would also pose significant risks to the fiscal and economic outlook, and lawmakers could feel more constrained in the policy choices open to them.
A better picture than last year, but not a good one
Compared with the agency’s June 2023 report, the numbers improved. Measured against GDP, the 2053 deficit is projected to be 1.6 percentage points smaller, and federal debt 17 percentage points smaller. CBO credits a cut in projected discretionary spending, which flows from the annual funding limits in the Fiscal Responsibility Act of 2023 and from the Further Continuing Appropriations and Other Extensions Act, 2024.
The economic assumptions behind the projections shifted as well. CBO now expects the economy to grow faster over the next 30 years than it projected in June 2023, because net immigration is boosting the potential labor force and capital is building up faster. Even so, growth over the coming three decades is slower than over the previous three. Population growth slows, and without immigration the population would begin to shrink in 2040.
Inflation, in CBO’s outlook, eases through 2026 to a rate consistent with the Federal Reserve’s 2 percent goal and stays there through 2054. Interest rates generally rise over the period, largely because federal borrowing and capital income as a share of total income both increase.
