Federal debt is projected to nearly double to 202 percent of gross domestic product by 2051, the Congressional Budget Office said Thursday, reflecting rising health and debt service costs.
The U.S. economy is projected to grow 1.8% annually over the next three decades, up from the 1.6% forecast by the nonpartisan agency in September, as the OBC now expects an impact. minor of the coronavirus pandemic. Growth averaged 3.1% annually from 1951 to 2020, the OBC said.
Federal debt is projected to be 102% of gross domestic product by 2021. It has only exceeded this level twice in U.S. history, in 1945 and 1946, after an increase in federal spending as a result of the Second World War.
The forecasts do not take into account the $ 1.9 trillion in federal spending proposed by President Biden and backed by Democrats, who closely control the House and Senate. Democrats say the move is needed to alleviate the pain of business closures and the loss of employment caused by the pandemic and restrictions on economic activity.
Republicans in Congress, meanwhile, oppose the size of the stimulus package and have noted that budget deficits and debt are growing as a reason to keep spending under control, as they argue that the economy is already prepared for stronger growth.
“The risk of a fiscal crisis appears to be low in the short term despite higher pandemic deficits and debt,” the OBC said. “However, much higher debt over time would increase the risk of a fiscal crisis in the coming years.”
Budget deficits will widen to 13.3% of GDP in 2051, from 5.7% in 2031, driven mainly by rising debt service costs, the OBC said. Net interest spending will triple relative to GDP in the two decades before 2051, and it will also increase spending on programs like Social Security and Medicare.
Weak federal revenues are also expected to contribute to the widening of the budget gap, the OBC said. After declining to 16% percent in 2021 from 16.3% in 2020, total revenue share of GDP is projected to reach 17% in 2025.
The projections offered Thursday are an extension of the forecasts CBO released last month for the next decade, which showed that federal debt is expected to reach a record 107% of economic output by 2031, from 100 % of GDP for the last financial year ended September. 30.
Although federal budget deficits were high and rising earlier than last year, they have grown significantly as a result of the economic disruption caused by the coronavirus pandemic and the trillions of dollars of economic relief approved during the administration of former President Donald Trump.
Net interest costs as a share of GDP will average 1.6% over the next decade, the OBC said, well below the 50-year average. But they are expected to increase over the next two decades, reaching 8.6% in 2051.
The OBC warned that its long-term budget forecasts are subject to greater uncertainty than usual due to the pandemic and could be altered by unexpected changes in demographics, health or the economy.
Administration officials, including Treasury Secretary Janet Yellen, have argued that the projected low debt costs mean Congress can apply for more loans now to support the recovery of the U.S. economy. They say now asking for more loans could drive a faster recovery, which could improve the country’s fiscal health.
Meanwhile, some money managers have been concerned that stimulus measures will lead to a rise in inflation and erode the value of bond yields. The performance of the benchmark ten-year treasury note, which influences the borrowing costs of the entire economy, has already risen to levels not seen since the start of the pandemic.
The CBO projected that ten-year treasury yields will average 1.6% from 2021 to 2025 and 3% from 2026 to 2031, before steadily increasing to 4.9% in 2051.
Write to John McCormick at [email protected]
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