The Congressional Budget Office projected on Thursday that the federal budget deficit will begin to narrow in the coming years, as the United States economy recovers from the coronavirus pandemic, but will increase again during the second half of the decade and will increase continuously over the next 20 years. In 2051, the federal debt is expected to double as a share of the economy.
The projections offer short-term hope for the country’s fiscal situation, which is expected to improve as government spending on the pandemic decreases, when normal business activity resumes, as more Americans are vaccinated and find jobs. But the non-partisan office forecasts a more challenging long-term outlook, as interest costs rise and federal spending on health programs increases as the population ages.
“An increasing debt burden can increase the risk of a fiscal crisis and higher inflation, as well as undermine confidence in the US dollar, making it more expensive to finance public and private activities in international markets,” said the CBO report.
The prospect also does not reflect the additional spending that Congress is expected to approve this year, which is likely to include a $ 1.9 trillion stimulus project and a major infrastructure package. This package, which will be financed with borrowed money, is expected to exacerbate the budget deficit in the short term, according to previous CBO estimates.
The CBO said the federal budget deficit – the difference between what the United States spends and what it collects in taxes and other revenues – is expected to be 10.3% of gross domestic product this year, the second highest level since 1945. The The deficit is expected to fall to 5.7% of GDP by the end of the decade, as spending to combat the pandemic decreases and growth increases. But in the next two decades, the budget gap will widen again, rising to 13.3% in 2051, the report said.
The federal debt held by the public is expected to reach 102% of GDP by the end of this year and almost double – 202% – in 30 years. The CBO warned that these high levels of indebtedness will raise borrowing costs, slow economic production and increase the risk of a fiscal crisis.
The Committee for a Responsible Federal Budget, a fiscal watchdog group, later warned that a preliminary forecast was released last month that the country’s long-term outlook was an “air raid siren that can be heard for miles”. He said the growing debt would make it more difficult to tackle income inequality and make the necessary infrastructure improvements.
Other fiscal warning signs also abound. The Peterson Foundation noted that net interest on national debt will total $ 61 trillion over the next 30 years, increasing to 47% of federal revenues by 2051.
“These payments obviously do nothing to help solve the many important challenges we face, such as climate change, infrastructure, economic justice and national security,” said Michael Peterson, the foundation’s chief executive.
Treasury Secretary Janet L. Yellen pointed to the interest charge as a metric to be noted at her confirmation hearing in January, noting that when tax revenue is needed to pay interest, it could lead to a reduction in other services or necessary expenses.