CBO 2024 Fiscal Outlook Is Grim: Will the U.S. Government Finally Address Rising Federal Debt?

Last week, the Congressional Budget Office (CBO), which is the gold standard of U.S. federal legislative analysis, released its Long-Term Budget Outlook. This outlook projects the nations' fiscal and economic outcome for the next three decades. What fun and joy does the CBO predict for the upcoming thirty years? 

Debt will reach 166 percent of GDP in 2054. As the CBO's graph shows below (p. 10), this amount will be significantly higher than World War II. It will be in 2029 that debt will reach its highest levels and go up from there. 

Entitlement spending is why expenditures continue to outpace revenue. Until the government gets its spending habits under control, there will continue to be a growing deficit. Social Security and Medicare are the two largest culprits of this spending binge. By 2054, these two programs will account for 41.4 percent of federal spending (p. 4).

Interest outlays will more than double. The U.S. government already spends more on interest outlays than it does national defense. By 2054, we will be paying 6.4 percent of GDP (or 23.1 percent of government spending) towards interest payments (p. 10). As I have mentioned before, not only do higher interest payments hamper economic growth, but it means that we could spend that money on something other than interest outlays. 

Two silver linings. One is that the Old Age and Survivors Insurance (OASI) Fund with Social Security with Social Security will expire in 2034, which is one year later than previously projected. But still, it is not good (see below). Two, debt-to-GDP ratio projections are at 165 by 2054, which is 17 percentage points lower over a comparable period than when the CBO released last year's report. Nevertheless, as previously alluded to, it is still a perturbingly high amount of debt.

Postscript. All in all, this unsustainable fiscal path is a quagmire waiting to happen and it shows no signs of slowing down. It reminds me why credit rating agency Fitch's downgraded the U.S. credit rating last year. As the bipartisan Committee for a Responsible Federal Budget (CRFB) enumerates, high debt results in threatened economic vitality, increased budget strains, geopolitical challenges, punishing younger generations, and making it more difficult to respond to emergencies and recessions. Addressing the national debt needs to be a priority if the United States wants to continue being a beacon of economic prosperity. If policymakers continue to kick the can down the road, future policymakers will have to make difficult decisions similar to those that Argentinean President Javier Milei is having to make. I think Argentinean culture is by and large great, but fiscal irresponsibility is one feature of Argentina the United States should not emulate.