If Not Now, When? New Estimates of the Federal Budget Outlook

We provide estimates of the federal budget outlook based on new Congressional Budget Office (CBO) analysis. CBO projects a debt-to-GDP ratio of 93 percent by fiscal year 2029 under current law, up from 78 percent today. Under a “current policy” scenario similar to CBO’s alternative fiscal scenario – in which policymakers routinely extend temporary provisions, as they have in the past – we project a debt-to-GDP ratio above 106 percent by 2029, which would be the highest ratio in U.S. history. Notably, the projections include the only sustained period when the U.S. has had full-employment deficits around and above 4 percent of GDP. After the first decade, fiscal pressures mount, with the debt-to-GDP ratio rising to 193 percent by 2049 under current policy. To ensure the debt-to-GDP ratio 30 years from now does not exceed the current level would require a combination of immediate and permanent spending cuts and/or tax increases totaling 3.9 percent of GDP under current policy. In 2019, this represents about a 21 percent cut in non-interest spending or a 24 percent increase in tax revenues. Over the longer term, the required adjustment would be even larger.

This research report was originally published by the Brookings Institution on February 11, 2019.