Mounting Debt Levels Pose ‘Significant Risks’ to Fiscal, Economic Outlook: CBO

Red ink will swallow the U.S. economy in the coming years, the budget watchdog said.

The national debt clock displayed at a bus station in Washington on Jan. 2, 2025. Madalina Vasiliu/The Epoch Times

Rising interest costs will add to federal budget deficits and the national debt over the next 30 years, the Congressional Budget Office (CBO) said in a new estimate.

The nonpartisan budget watchdog published its long-term budget projections on March 27, using current law without President Donald Trump’s economic agenda.

The organization concluded that red ink will swallow the U.S. economy in the coming years.

Public debt will soar to 156 percent of GDP by 2055, up from 100 percent this year, exceeding the World War II peak.

“It remains on track to increase thereafter,” the official legislative scorer said in the report.

“Mounting debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook.”

CBO researchers noted that increasing debt levels could also force lawmakers to be more cautious in their policymaking decisions.

Federal deficits as a share of the economy will increase to 7.3 percent from 6.2 percent in 2025.

This is firmly above the 30-year average of 3.9 percent and will “average 0.3 percent of GDP more over the next 30 years than they did over the past 50 years.”

Interest costs are anticipated to be a significant factor in persistent and ballooning budget deficits, according to the CBO report.

Outlays are predicted to reach 26.6 percent of GDP in 2055, driven by spending on interest payments, Medicare, and Social Security.

An aging population will lift spending on Social Security benefits to more than 6 percent of GDP in 2055, up from the current level of 5.2 percent.

Assuming that provisions of the 2017 Tax Cuts and Jobs Act expire, revenues are projected to increase over the next few years and will account for 19.3 percent of GDP in 30 years.

The jump is a result of higher real (inflation-adjusted) income levels that will boost income tax receipts.

The next three decades could witness the U.S. economy slowing compared with the previous 30 years, easing to 1.4 percent growth by 2055.

“The slowdown in the growth of output results from slower growth in the size and productivity of the labor force; the latter stems partly from increased federal borrowing,” the CBO stated in the report.

Population growth will also slow and potentially begin to shrink in 2033 without immigration, causing a shrinking labor force.

The United States has grappled with elevated and persistent price pressures over the past few years.

These challenges could dissipate by 2027 as inflation returns to the Federal Reserve’s 2 percent target and “remains at rates that are consistent with that goal from 2027 to 2055.”

The interest rate on the benchmark 10-year Treasury note will emulate the average observed over the past 30 years.

The flat yield will reflect “upward pressure from increases in federal borrowing and downward pressure from slowdowns in the growth of the labor force,” the CBO stated.

Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said the CBO report presents a “timely warning” for the upcoming tax policy debate.

“Fiscal policy matters for every American because rising debt inhibits economic growth and puts upward pressure on inflation and interest rates, driving up the cost of everything from grocery shopping to buying a home,” Peterson said in a statement.

“Given the severity of our fiscal condition, policymakers should use this year’s budget reconciliation and tax deadlines to improve our debt outlook. At the very least, they should pledge to do no fiscal harm.”

CBO Focuses on Debt Ceiling, Trump Tax Cuts

This month, the CBO has published two reports on near-term fiscal issues: the debt ceiling and the Trump-era tax cuts.

The organization projected that debt would spike if the president’s tax cuts were made permanent rather than extended.

By keeping the 2017 law intact and other budget items in place, the debt would top 200 percent of GDP in 2054.

According to the CBO, in a report to Rep. David Schweikert (R-Ariz.), this is “47 percentage points higher than in the long-term baseline projections” released a year ago.

Meanwhile, the United States risks a default as soon as August or September with a debt-ceiling deal between Congress and the White House.

The federal budget watchdog stated that lawmakers would need to either suspend the debt ceiling or reach an agreement.

President-elect Donald Trump's nominee for treasury secretary, Scott Bessent, testifies before the Senate Committee on Finance on Capitol Hill in Washington on Jan. 16, 2025. Madalina Vasiliu/The Epoch Times

A default could occur as early as May if the government borrows more than the CBO projects.

“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government will be unable to pay all of its obligations,” the CBO stated.

“As a result, it would have to delay making payments for some activities, default on its debt obligations, or both.”

Bessent Shines Spotlight on CBO

Since arriving in Washington, Treasury Secretary Scott Bessent has been critical of the CBO’s scoring measures.

Earlier this month, speaking in an interview with Fox Business host Larry Kudlow, Bessent stated that “CBO scoring makes Enron look conservative.”

“For those of you, when I used to sit out there for 35 years, I thought I knew how Washington accounting works, and I was wrong,” Bessent said in a question-and-answer period at the Economic Club of New York.

“Now that I’m inside the sausage factory, just so everyone can kind of level set, CBO scoring makes Enron look conservative. It’s crazy, the things that they have.”

The current CBO protocol, according to Bessent, involves rescoring tax policy rather than outlays.

“Extending the current tax policy gets rescored,” he said. “Extending current spending—the spending that got put in—does not get rescored.”

The veteran Wall Street billionaire said he espoused the CBO scoring throughout his 35-year investment career.

Now that he is in the federal government, Bessent said he has realized he did not understand much about the watchdog’s methodology.

“I talked very confidently that CBO scoring says this. And it turns out I didn’t know you-know-what about CBO scoring,” he said in a recent appearance on the popular All-In podcast.

“Like when you’re on this side of the wall, you realize how crazy it is.”