The Congressional Budget Office (CBO)’s new long-term budget projections, released today, are very similar to those that CBO published in September 2013 and to ones that we released in May 2014. They show that the nation’s fiscal outlook is stable for the rest of this decade and then worsens gradually.
CBO projects that, under current policies, the federal debt in 2020 will amount to 74 percent of GDP — the same level as in 2014. The debt will rise slowly thereafter, reaching 106 percent of GDP by 2039.
Other recent budget projections have told the same familiar story. CBO projected last year that the debt-to-GDP ratio would reach 102 percent in 2039, and CBPP recently projected a debt-to-GDP ratio of 101 percent in 2040.
For the 2014-2024 period, CBO’s new long-term projections are identical to its April 2014 baseline. Beyond the first ten years, CBO has made some small revisions in assumptions that, on balance, leave the projected path of debt largely unchanged.
When we released our long-term estimates in May, we said: “No deficit or debt crisis looms, and the weak labor market remains the nation’s most immediate economic concern. But policymakers and the public should not ignore the long-run budget problems, which remain challenging.” That conclusion still holds.
A stable — or declining — debt-to-GDP ratio is an appropriate goal for fiscal stability. Although a rising debt ratio may be advantageous when the economy is operating well below its potential, as it has been since 2008, a rising debt ratio in good times reflects an unsustainable budget policy that ultimately poses threats to financial stability and long-term growth. Policymakers should reduce projected debt-to-GDP ratios through carefully designed policies that strengthen (rather than weaken) the slow economic recovery in the near term, while putting in place equitable and balanced deficit reduction that grows over time.