Federal debt to reach 106 percent of economy in 2039, CBO says

WASHINGTON — The U.S. debt held by the public is expected to rise to 106 percent of the economy in 2039 from 74 percent this year, largely driven by increases in the cost of health benefits, the Congressional Budget Office said Tuesday.

To put federal finances on a sustainable path, Congress must boost revenue, cut spending on benefit programs or combine the approaches, the nonpartisan CBO said in its long-term budget outlook released today.

“The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices,” CBO said in the report. “Unless substantial changes are made to the major health-care programs and Social Security, spending for those programs will equal a much larger percentage of GDP in the future than it has in the past.”

The CBO projected in April that the U.S. budget deficit will narrow to $492 billion this year, the lowest level since 2008 and down more than 60 percent from a record $1.4 trillion in 2009.

Higher spending on Medicare and Medicaid will cause the budget deficit to begin increasing in 2016, according to CBO’s projections.

As a share of the economy, the budget deficit will increase to 3.7 percent in 2024 and 6.4 percent in 2039, from 2.8 percent in 2014, the agency said Tuesday.

Sen. Orrin Hatch, a Utah Republican, said in a statement that the CBO report “is a stark reminder of the urgent need for entitlement reform.”

The CBO in April projected that this year’s debt would be 73.8 percent of U.S. gross domestic product. The debt will rise to 78 percent of GDP in 2024 and increase to 106 percent in 2039, a level seen only once before in U.S. history, just after World War II, CBO said today.

“Federal spending for Social Security and the government’s major health-care programs — Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through the exchanges created under the Affordable Care Act — would rise sharply,” CBO said.

By 2039 those programs would reach 14 percent of GDP by 2039, “twice the 7 percent average seen over the past 40 years,” CBO said.

Also contributing to the higher cost will be higher interest payments on the debt, the CBO said.

“The government’s net interest payments would grow to 4.5 percent of GDP by 2039, compared with an average of 2 percent over the past four decades,” according to the report.

Last year, CBO expected the 2039 debt-to-GDP ratio at 102 percent, the report said.

“The nominal amount of debt projected for 2039 is nearly the same in both projections, but GDP is now projected to be a bit smaller, resulting in a slightly higher ratio of debt to GDP,” the CBO said.


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