Fixes the CBO’s projection of debt-to-GDP in the year 2049.
The fiscal health of the United States is projected to deteriorate as the aging of the population pushes up spending on Social Security and Medicare, according to a new estimate released Tuesday.
Under its most likely scenario, the Congressional Budget Office said the debt held by the public would reach what it calls an “unprecedented” level of 144% of gross domestic product in 2049, up from 78% in 2019.
That would put the debt compared to the economy well over levels seen during World War II.
In addition to the aging of the population — driven both by the baby boomers as well as increasing life expectancy — rising health costs per person also would drive Medicare spending higher, the CBO said.
While revenue would increase, it wouldn’t keep up with spending, the CBO estimated.
Net outlays for interest would more than triple in relation to the size of the economy over the next three decades, exceeding all discretionary spending by 2046, the CBO said.
The CBO estimates assume that potential GDP growth would average 1.9% over the next 30 years, mostly because the labor force is expected to grow slowly. By 2049, about 87% of the population growth is expected to come from immigration.
And the CBO projection assumes current law would be carried out. Debt could reach 219% of GDP in 2049 if Congress prevented a cut in discretionary spending — which they are trying to do — and if the individual tax cuts from the Tax Cuts and Jobs Act were not sunset in 2026.
If Congress took the draconian step of limiting future Social Security benefits to the revenue from the Social Security trust fund, debt would still climb to 106% of GDP.
Still, the CBO said debt as a percentage of GDP in 2048 is projected to be 11 percentage points lower in this year’s extended baseline projections than it was in last year’s, owing to a decline in spending projections.
That decline is because of smaller appropriations for relief and recovery efforts related to hurricanes and wildfires — which then get projected over the long term — and because of a downward revision of average interest rates.
There’s little sign that bond investors are worried about the fiscal picture. The yield on the 30-year note
is just 2.53%, well below the 40-year average of 6.54%.