According to the Congressional Budget Office (CBO)’s 2016 Long-Term Budget Outlook report, federal debt could double as a percentage of GDP over the next three decades. Released on Tuesday 12 July, the yearly snapshot of long-term federal spending argued that US Government debt is set to continue to rise “if current laws governing taxes and spending [do] not change”.
The CBO report noted that while federal public debt accounted for 39 percent of GDP at the end of FY 2008, it has since risen to 75 percent of GDP following the Great Recession. Based on its projections, the CBO predicts that the US’ debt-to-GDP ratio could reach 86 percent by the end of 2016, and 141 percent by 2046.
The CBO predicts that the US’ debt-to-GDP ratio could reach 86 percent by the end of 2016, and 141 percent by 2046
Debt as a percentage of GDP is set to rise primarily due to the inability of revenue to keep pace with the growth of federal spending. Much of this future growth is likely to come from social security and federal-funded healthcare obligations for an ageing population. As the CBO report notes: “Members of the baby boom generation age, and as life expectancy continues to increase, the percentage of the population age 65 or older is anticipated to grow sharply, boosting the number of beneficiaries of those programs.”
While half of noninterest spending is projected to be dedicated to federal programmes for those aged over 65, the remainder of the growth in spending is predicted to be driven by social security and rising healthcare costs per person, owing to new medical technologies.
Net interest payment spending is also predicated to increasingly contribute to federal spending obligations, with the report noting “interest rates are expected to be higher in the future than they are now, making any given level of debt more costly to finance”.