The following charts are from the CBO’s Long Term Budget Outlook:
Deficits, CBO notes, are growing because spending is growing faster than revenue, “in particular, spending grows for Social Security, the major health care programs (primarily Medicare), and interest on the government’s debt.”
The result is a federal-public-debt-to-GDP ratio that would go from its current 75 percent (up from 39 percent in 2008) to 86 percent in 2026 and 141 percent in 2046. That’s much higher than in the aftermath of World War II. It is also a slight improvement over the previous projections due to lower than expected interest rates. However, CBO warns, a 1 percent addition increase in the rate would propel the debt to GDP level at 188 percent. Gross debt is much higher.
There are a lot of assumptions going into this outcome. Many of them are unlikely to materialize (i.e., no depression in the next 30 years or unemployment rate consistently at 5 percent over the next 30 years), which would make the final numbers look way worse than they do now.
In fact, CBO writes:
If current laws governing taxes and spending remained generally the same, CBO estimates, debt would nearly double as a percentage of GDP over the next 30 years. That projection is very uncertain, however, so the agency examined how it would change if four key inputs — labor force participation, productivity in the economy, interest rates on federal debt, and health care costs per person — were different from their levels in the extended baseline. The resulting projections show that debt in 2046, measured as a share of GDP, could be much larger or smaller than it is in the extended baseline, ranging from nearly twice the largest amount recorded in U.S. history to slightly less than that record high. Even at the low end of that range, debt would be higher than it is now.
Other factors, such as an economic depression, a major war, or unexpected changes in fertility, immigration, or mortality rates, could also affect the trajectory of debt. Taking all factors into account, CBO concludes that despite the considerable uncertainty of long-term projections, debt as a percentage of GDP would probably be greater — in all likelihood, much greater — than it is today if current laws remained generally unchanged.
As the Wall Street Journal reports:
The CBO’s forecasts have consistently shown that spending on health-care programs and Social Security are far and away the largest drivers of spending over the coming decades as an aging workforce will leave fewer workers to support more retirees.
But, please, don’t worry. The Democrats have a plan: They will grow spending, tax the rich more, expand Social Security, add a public option to Obamacare, get in the way of innovation and the sharing economy, and add more sclerosis to the labor market. As we know, spending money and more government interventions in the economy have done wonders to our economy so far.