The Congressional Budget Office projects the federal debt will exceed the economy's size by the end of the year and will balloon to 202% of gross domestic product over the next 30 years. And that's their outlook without factoring in President Joe Biden's, which is making its way through the Senate this week.
According to the nonpartisan office, by the end of this year, the federal debt will be 102% of GDP, a proportion that will nearly double by 2051. The CBO warns this increases the risk of a fiscal crisis and higher inflation moving forward.
The projections come after the coronavirus pandemic last year triggered the deepest economic downturn since World War II. With millions of people out of work and businesses temporarily or permanently shut down, revenues decreased while spending soared.
The White House and congressional Democrats warn the United States is far from out of the woods in its efforts to contain the coronavirus pandemic and revitalize the economy. On Thursday, the Labor Department weekly report showed more than 1.1 million people last week, including Pandemic Unemployment Assistance. More than 18 million people remain on some form of unemployment benefits.
But Republican lawmakers argue the latest COVID-19 relief package includes too much spending not directly related to getting control of the virus and targeting those financially affected.
According to the CBO projections, as the economy recovers, the deficit will decline in the near future. However, the deficit would then start to increase, driving up the debt which would hit a historic level for the country by 2031 and continue to climb.
Once spending associated with the pandemic declines, the report states, total spending is projected to increase in each year over thirty years. The report attributes some of that to interest more than tripling with the growth of debt and rising interest rates.
Another factor the CBO calls a "significant contributor" is increased spending on Social Security, Medicare and other health care programs, because of rising health care costs as well as the population aging. The CBO finds discretionary spending, of which half is on national defense, is expected to decline in relation to GDP over the next 10 years, but is then projected to stay consistent across the following two decades.
After a post-pandemic-related dip, federal revenues are expected to rise. The CBO attributes this to scheduled changes in the current tax rules including the expiration of provisions in the 2017 tax law affecting income taxes. Meanwhile, the Biden administration has indicated it would like to roll back some corporate tax cuts made under the Trump administration as well as close other loopholes as it looks ahead.