Skip to content

Fiscal Outlook

Long-Term Budget Outlook Leaves No Room for Costly Legislation

Last Updated March 27, 2025

white-print-icon

PRINT

Share

Today, the nonpartisan Congressional Budget Office (CBO) released its Long-Term Budget Outlook, which once again highlights the country’s unsustainable fiscal trajectory. As lawmakers consider costly legislation to extend expiring tax provisions this year, CBO’s latest projections serve as a warning that our fiscal outlook is already dangerously unsustainable.

CBO’s report shows debt growing over the next three decades and highlights many potential consequences of large and growing debt:

  • Borrowing costs throughout the economy would rise, reducing private investment and slowing the growth of economic output.
  • Rising interest costs associated with federal debt would drive up interest payments to foreign holders of that debt and thus decrease national income.
  • The United States’ fiscal position would be more vulnerable to an increase in interest rates because the larger the debt is, the more an increase in interest rates raises debt-service costs.
  • The risk of a fiscal crisis — that is, a situation in which investors lose confidence in the value of the U.S. government’s debt — would increase. Such a crisis would cause interest rates to rise abruptly and other disruptions to occur.
  • The likelihood of other adverse outcomes would also increase. For example, expectations of higher inflation could erode confidence in the U.S. dollar as the dominant international reserve currency.
  • Lawmakers might feel constrained from using federal tax and spending policies to respond to unforeseen events or for other purposes, such as to promote economic activity or strengthen national defense.

Here are eight key takeaways from CBO’s latest projections.

1. The national debt will be substantially higher by 2055.

Debt held by the public equaled 98 percent of gross domestic product (GDP) at the end of fiscal year 2024. Under current law, CBO projects that ratio will climb steadily — reaching 156 percent of GDP in 2055.

2. The mismatch between revenues and spending will continue to grow.

The primary driver of the nation’s rising debt is the structural mismatch between federal receipts and outlays. CBO projects that outlays will climb from 23.7 percent of GDP in 2024 to 26.6 percent in 2055. CBO also projects that revenues will rise over the next 30 years relative to the size of the economy, but at a slower pace, reaching 19.3 percent of GDP in 2055.

3. Social Security and Medicare will drive the growth in programmatic spending.

The aging of the population and rising healthcare costs will cause spending on Social Security and federal healthcare programs, primarily Medicare, to continue climbing over the next 30 years. Federal spending on Medicare (net of premiums and other receipts) will increase from 3.1 percent of GDP in 2025 to 5.2 percent by 2055, while outlays for Social Security will climb from 5.2 percent of GDP to 6.1 percent over that period.

4. Federal revenues won’t keep pace with rising spending.

CBO projects that total federal receipts will rise by about 2 percentage points of GDP over the next 30 years — from 17.1 percent in 2025 to 19.3 percent in 2055. Receipts from individual income taxes, which account for over half of federal revenues, are projected to rise in the coming years, from 8.7 percent of GDP in 2025 to 10.0 percent in 2027, because of the scheduled expiration of certain provisions of the Tax Cuts and Jobs Act at the end of December 2025.

5. Rising debt puts upward pressure on interest rates.

CBO anticipates that the average interest rate on outstanding debt will be 3.4 percent in 2025. In CBO’s projections, that average is 3.6 percent over the 30-year period. Nonetheless, it is clear that CBO does not expect interest rates to fall to pre-pandemic levels (which, for example, averaged 2.2 percent from 2015 to 2024).

6. The accumulation of federal debt and rising interest rates will lead to increased borrowing costs.

In CBO’s projections, interest costs would reach 3.2 percent of GDP in 2025, which would be near the post-World War II high for that ratio, which occurred in 1991. Interest costs would continue climbing over the following decades, reaching 5.4 percent of GDP by 2055. At that point, interest payments would account for 28 percent of federal revenues. Over the next three decades, CBO projects the United States will spend a total of 76 trillion on interest costs alone.

7. The trust fund for Social Security retirement is expected to be depleted within eight years.

CBO projects that the balance of Social Security’s Old-Age and Survivors’ Insurance (OASI) Trust Fund will be depleted in 2033. At the time of depletion, the program will be unable to pay its full obligations, and an automatic reduction in benefits of 24 percent would take place.

8. Real GDP growth is projected to be below 2 percent annually over the next 30 years.

Over the long term, CBO projects that growth in real GDP will be below 2 percent each year — falling from 1.8 percent in 2026 to 1.4 percent by the end of the 30-year horizon.

While CBO’s Long-term Budget Outlook shows a current-law scenario for the budget, recent analysis from the organization highlighted debt skyrocketing even further under a scenario where the expiring provisions of the Tax Cuts and Jobs Act were made permanent. In that light, today’s outlook represents an “optimistic” scenario and should serve as a timely reminder of the need for fiscal responsibility during this year’s tax debate.

As Michael A. Peterson, CEO of the Peter G. Peterson Foundation, commented, “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.”

Further Reading

More Articles