전망·동향
The fiscal outlook at the beginning of the new administration
In light of recent economic trends and the most recent Congressional Budget Office projections,1 we offer new estimates of the medium- and long-term fiscal outlook, updating our previous work, most recently by Auerbach and Gale.2
The basic story has two components. First, federal non-interest spending and revenues are out of balance, generating persistent primary deficits that are sizable given the near-full-employment assumptions. Second, net interest payments rise steadily and substantially relative to GDP due to high pre-existing debt, persistent primary deficits, and gradually increasing interest rates. Together, these two patterns generate rising unified deficits and public debt as a share of GDP.
Under current law for the next 10 years, CBO’s projections imply that primary deficits will average 2.1% of GDP. Net interest payments will rise from 3.1% of GDP to 4.1% in 2035, which would represent an all-time high. Both the unified deficit and the cyclically-adjusted deficit average about 6% of GDP over this period. Debt will rise from 98% of GDP at the end of 2024 to 118% by 2035, another all-time high.
Over the following two decades, the projected trends are even less auspicious. Sizable primary deficits persist indefinitely. The average nominal interest rate on government debt rises to exceed the nominal economic growth rate by 2046, setting off the possibility of explosive debt dynamics. By 2055, relative to GDP, annual net interest payments reach 5.4%, the unified deficit reaches 7.0%, and the public debt stands at 154%. All these figures would be all-time highs (except for deficits during World War II, the 2008 financial crisis, and in the first two years of the COVID-19 pandemic) and would continue to grow after 2055.
The basic story has two components. First, federal non-interest spending and revenues are out of balance, generating persistent primary deficits that are sizable given the near-full-employment assumptions. Second, net interest payments rise steadily and substantially relative to GDP due to high pre-existing debt, persistent primary deficits, and gradually increasing interest rates. Together, these two patterns generate rising unified deficits and public debt as a share of GDP.
Under current law for the next 10 years, CBO’s projections imply that primary deficits will average 2.1% of GDP. Net interest payments will rise from 3.1% of GDP to 4.1% in 2035, which would represent an all-time high. Both the unified deficit and the cyclically-adjusted deficit average about 6% of GDP over this period. Debt will rise from 98% of GDP at the end of 2024 to 118% by 2035, another all-time high.
Over the following two decades, the projected trends are even less auspicious. Sizable primary deficits persist indefinitely. The average nominal interest rate on government debt rises to exceed the nominal economic growth rate by 2046, setting off the possibility of explosive debt dynamics. By 2055, relative to GDP, annual net interest payments reach 5.4%, the unified deficit reaches 7.0%, and the public debt stands at 154%. All these figures would be all-time highs (except for deficits during World War II, the 2008 financial crisis, and in the first two years of the COVID-19 pandemic) and would continue to grow after 2055.
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