Michael A. Peterson, CEO of the Peter G. Peterson Foundation, commented today on the release of the Congressional Budget Office’s updated Long-Term Budget Outlook:

“Today’s CBO report shows debt rising rapidly over the next three decades, and serves as a timely warning for this year’s tax policy debate. 

“Over the next 30 years, debt will grow to a staggering 156% of GDP.  Annual interest costs will exceed $1 trillion next year, and total a stunning $76 trillion over the next three decades.   This report also shows that the depletion of Social Security’s retirement fund is just 8 years away, which would result in immediate, automatic cuts for all beneficiaries.

“As bad as this outlook is, it represents an ‘optimistic’ scenario, because policymakers are currently considering adding trillions more in tax cut extensions, which would only add to these levels of debt.  As CBO reported last week, extending the expiring provisions of the 2017 Tax Cuts and Jobs Act without offsets would double the deficit and send debt soaring to 214% of GDP. And if interest costs are one percentage point higher than expected, debt would balloon to 250% of GDP, showing just how sensitive our fiscal health is to the unpredictable interest rate landscape.

“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. 

“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. 

“A key part of a responsible approach to budgeting is rejecting gimmicks that attempt to conceal fiscal damage, such as overly optimistic economic growth assumptions or baseline games that misrepresent our fiscal path.  Lawmakers should use nonpartisan, credible estimates for growth, continue to use the current law baseline, and fully pay for their priorities by choosing from the many available revenue and spending offset options.

“CBO’s report makes it crystal clear that our fiscal challenges are serious, but many solutions exist and it’s not too late to act.”

In addition to today’s report, late last week CBO released an analysis showing deficits doubling and debt growth accelerating if the expiring provisions of the Tax Cuts and Jobs Act (TCJA) were made permanent without offsets.  Macroeconomic feedback effects of our growing debt could further increase interest rates and lead to even more debt and worse fiscal outcomes. The report found:

• If provisions of the TCJA were made permanent (and there were no other changes to fiscal policy):
  • Debt to GDP would reach 214% in 2054 — 47 percentage points higher than under the baseline scenario in which the provisions expire as scheduled, and well above the current level of 98% of GDP.
  • The annual deficit as a share of GDP would nearly double, from 6.3% this year to 12.3% in 2054.
  • If interest rates also increased by 1 percentage point:
    • Debt to GDP would exceed 250% within 30 years. Notably, CBO was not able to project debt that exceeds 250% of GDP due to limitations of its current model. 
    • The annual deficit as a share of GDP would reach 16.6%, nearly double the projected level of 8.5% under the baseline scenario in which the provisions expire as scheduled.