The federal debt is poised to double to 202% of gross domestic product over the next 30 years, according to the Congressional Budget Office, heightening the risk of a financial crisis in the U.S.
The nonpartisan office projected that federal debt will be 102% of GDP by the end of this year and will nearly double that by 2051. Such high debt levels could increase borrowing costs, slow economic output and increase the danger of a financial crisis, the CBO said.
The outlook does not take into account the additional spending that Congress is expected to approve this year, including President Biden's $1.9 trillion coronavirus relief package that Democrats hope to enact in the coming weeks, as well as an expensive infrastructure bill.
Republican lawmakers unanimously oppose the latest stimulus measure, criticizing the size and scope of the legislation and pointing to the nation's ballooning deficit — which hit $3.1 trillion in fiscal year 2020 — as a reason to avoid extraneous spending when they say the economy is already poised for a strong recovery from the pandemic.
“The risk of a fiscal crisis appears to be low in the short run despite the higher deficits and debt stemming from the pandemic,” the CBO said. “Nonetheless, the much higher debt over time would raise the risk of a fiscal crisis in the years ahead.”
The federal budget deficit, the gap between what the U.S. spends and what it collects in taxes and other revenue, is expected to reach 10.3% of GDP this year, the second-highest level since 1945. The budget deficit could balloon to 13.3% of GDP in 2051 after dropping slightly in 2031 as the economy rebounds from the pandemic-induced recession.
Driving the deficit surge, the CBO said, is the increasing cost of serving the debt: Net spending on interest will triple relative to GDP in the two decades leading up to 202. Spending on programs like Social Security and Medicare is also expected to rise.
"High debt levels will slow income and wage growth, increase interest payments, place upward pressure on interest rates, reduce the fiscal space available to respond to a recession or other emergency, place an undue burden on future generations, and heighten the risk of a fiscal crisis," the Committee for a Responsible Federal Budget, a non-partisan group, said in a statement.
They added: "While policymakers are rightly focused on responding to the current crisis, they cannot and should not continue to ignore our long-term fiscal situation."