The Congressional Budget Office (CBO) on Tuesday released its 2018 update to the long-term federal budget, and the picture is not a pretty one. Based on projected revenue and spending growth, the amount of federal debt held by the public is projected to nearly double from 78% of gross domestic product (GDP) in 2018 to 152% in 2048.
The worse news is that interest payments on accumulated debt are projected to more than double as a percentage of GDP. According to CBO director Keith Hall, “Those costs would equal spending for Social Security, currently the largest federal program by 2048.”
Expect the rhetoric to increase in both volume and temperature as Republicans and Democrats face off on how to deal with this turn of events. The Republican-controlled House Budget Committee on Tuesday released a plan to balance the budget in nine years by slashing health care spending on Medicare, Medicaid and the Affordable Care Act (aka, Obamacare) along with more modest cuts in Social Security. That solution is not popular among Democrats
The CBO projects that an aging population will drive most of the spending growth in Social Security and Medicare. Rapidly rising health care costs also make a significant contribution.
Revenue estimates are projected to be roughly flat, then begin rising slowly before surging in 2026 when some provisions of the recently passed tax cuts expire. The CBO does not take into consideration the possibility that the tax cuts would continue, regardless of the likelihood of that occurring. Allowing the tax cuts to go on would make matters worse.
Even if the tax cuts expire, revenue growth is not projected to keep pace with spending growth. The CBO’s Hall notes, “Beyond 2028, the effects of the act’s major permanent provisions are expected to be modest, although their precise magnitudes are highly uncertain.”