Uncle Sam’s massive pile of debt is really starting to bite, according to a new Congressional Budget Office analysis Wednesday that shows rising interest costs are starting to eat up more of the government’s spending money.
CBO also projects the slowest long-term economic growth in the country’s history, averaging far less than 2% of gross domestic product over the coming decades.
Federal interest payments will be equivalent to 2.5% of the U.S. gross domestic product this year and will steadily rise in the coming years, to the point that by 2050, it will be the single biggest item in the budget, topping spending on Social Security, Medicare, Obamacare or the Defense Department.
And those payments will push the government ever deeper into the red, CBO said.
Without interest payments, the government would end this year with a deficit equivalent to 3.3% of GDP. In 2053, the non-interest deficit will still be 3.3% — but interest payments alone will cost $5 trillion that year, tacking on another 6.7% of GDP to the deficit and leaving a hole of nearly $8 trillion that year.
It’s a pattern that can’t continue, CBO warned.
“Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt and pose significant risks to the fiscal and economic outlook,” CBO said in releasing its long-term budget outlook.
Just about any way you slice it, things look grim.
The government will rack up $116 trillion in new borrowing over the next 30 years and will spend $71 trillion on interest payments, according to analysts at the Peter G. Peterson Foundation.
“This is not the future any of us want, and it’s no way to run a great nation like ours,” foundation CEO Michael A. Peterson said. “Solutions are well-known, readily available and entirely within our control – all we need is leadership and willingness to act.”
It’s not that the government is cutting revenue. That is projected to come in at 18% to 19% of GDP, which is higher than the average of the previous three decades.
The big damage comes on the spending side.
CBO said the government will spend roughly 24% of GDP this year, growing to 27% by 2043 and topping 29% by 2053. That’s all driven by the big entitlement programs like Social Security and Medicare, and by rising interest costs on the debt.
There are two reasons those interest costs are soaring. For one thing, interest rates are high and heading higher. But the sheer size of the debt is also growing.
This year, debt held by the public will be 98% of GDP. In 20 years, it will be 144% of GDP, and by 2053 it will be 181% of GDP.
That would exceed “any previously recorded level,” CBO said, summing the situation up as “a challenging fiscal outlook.
For an economy estimated to have a GDP of $79.5 trillion in 2053, that means Uncle Sam’s debt would be nearly $144 trillion.
Much of the fiscal pain seems baked into the equation, largely because of an aging population.
About 20% of the population will collect a Social Security check this year, but that will rise to 25% by 2053. In dollar terms, that means spending will rise from $1.3 trillion this year to $4.9 trillion in 2053.
Part of the issue is plunging birth rates. Within two decades, deaths will outpace births. At that point, the population’s growth will depend entirely on immigration, CBO said.
The analysts said another drag on the budget is projected climate change.
While warming will help some areas of the economy, it will be an overall drain. CBO said gross domestic product will be a full percentage point less in 2053 than it would have been without factoring in climate issues, or about $800 billion when calculated in 2053 dollars.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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