The Congressional Budget Office has just issued its Long-Term Budget Outlook for 2012 for the U.S. government’s budget, indicating that they now believe the United States government will double the size of its national debt, with respect to the nation’s GDP, in just 25 years time:
The budget outlook is much bleaker under the extended alternative fiscal scenario, which maintains what some analysts might consider “current policies,” as opposed to current laws. Federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2026, and it would approach 200 percent in 2037.
We should note that the CBO’s debt projection of a doubled debt by 2037 only considers the publically-held portion of the U.S. national debt — it does not consider the so-called “intragovernmental” portion of the U.S. national debt, which represents the money “loaned” to the U.S. Treasury by other government agencies, such as Social Security does through the surplus payroll tax collections it manages in its trust funds.
When that portion of the U.S. government’s debt is considered, the size of the U.S. national debt is much larger. Currently, it has regularly exceeded 100% of the nation’s annual GDP since 2011.
The debt projection is based upon the CBO’s alternative fiscal scenario, which has proven over time to provide a much more realistic projection of the U.S. federal government’s spending and tax collections than the CBO’s baseline scenario, which simply assumes that politicians will closely follow current law.
That assumption has historically proven to be a very poor one, given the great reluctance of U.S. politicians to adopt effective fiscal reforms to constrain the government’s spending. With that being the case, the CBO’s alternative fiscal scenario is the only meaningful scenario to consider when weighing the impact of that spending upon the nation’s future fiscal health.