Four Key Lessons from the CBO's Long-Term Budget Outlook

Earlier this year, the Congressional Budget Office (CBO) published a massive report on the possible economic future of the United States for the coming three decades. The Long-Term Budget Outlook examines the current and recent forces shaping the national economy and offers a few predictions spanning 2030 until 2052.

 What is the Congressional Budget Office Predicting?

Overall, these predictions are far from happy and speak of an unsustainable fiscal policy. Let's take a look at four of its most important conclusions.

1.  A widening gap between money in and money out

In an ideal economic scenario, we should always make more money than we are spending. In reality, since the turn of the millennium, the Federal Government's spending has slightly surpassed its revenues by about 3 to 5%.

So far – bar a temporary spike in spending coinciding with the start of the pandemic – this difference has remained remarkably stable. However, looking at the state of industries and policies, the CBO sees this gap steadily widening from 2030 – when it will cross 10% – until 2052, by which time it will reach 15% or more.

2.  The Debt-to-GDP ratio  will double

The debt-to-GDP ratio is the direct proportion between all the money made by the country (its Gross Domestic Product) and the amount of public debt held by its government. This ratio has been steadily growing since the turn of the millennium: in 2002, public debt stood at about 40% of the GDP. By 2022, it crossed the 100% landmark. Give it 40 more years, and I may reach 185%.

What does it entail? Essentially, it would take the entire income of nearly two years to pay the public debt accumulated by the government. This would make the United States a risky borrower – leading us to our next prediction.

3.  Further hikes in interest rates

For creditors, the main incentive for borrowing money is the prospect of getting it back with interest. If there's even a whiff of a possibility of losing it, then the potential earnings need to compensate for it. Likewise, if your money is expected to lose value by the time the debt is paid, the earnings should be large enough to compensate for it.

Ongoing inflation and the country's credit rating deterioration will further drive up interest rates. The CBO predicts that under the current trends, today's rate of less than 2% may reach 7.2% by 2052

4.  Interest payments will become the biggest budget item

Finally, larger debt and steeper interest rates will quickly inflate the U.S. Government's payments to its creditors. Generally, most money borrowed is seen as an investment, as it helps develop the economy, renew national infrastructure, and set the groundwork for future earnings.

However, interest payments don't directly address any of this – and they do not even cancel the existing debt. As it is, the Federal Budget will likely consist of just mandatory programs and interest payments before 2032. By 2052, we will be paying the same amount in interest as we are for any non-healthcare government programs. This will leave very little room for improving the country or generating new sources of revenue.

Final Thoughts

Perhaps the gloomiest conclusion of the CBO's report is that these are all projections based on the last ten years of economic policy. Inflation and recession have become a larger concern over the past 12 months. Many of the projections may fall short depending on how the next two years play out. But does this feel like optimism?

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

Image Credit: Photo by Fabian Blank on Unsplash

Share this article on

Read more