The federal debt is set to rise over the coming decades to the highest levels since World War II, as falling tax revenue and increased spending look likely to worsen the nation’s fiscal outlook, according to a report released Tuesday by the Congressional Budget Office.
In 2019, the debt held by the public is projected to amount to 78 percent of the nation’s gross domestic product, compared with 35 percent in 2007. That number is set to increase to 92 percent by the end of next decade, as well as 144 percent by 2049, the report says.
“That level of debt would be the highest in the nation’s history by far, and it would be on track to increase even more,” the CBO report says. “The prospect of such high and rising debt poses substantial risks for the nation, and presents policymakers with significant challenges.”
Decreasing federal tax revenue is expected to widen the nation’s deficit, particularly in the short term. In 2017, federal tax revenue amounted to 17.3 percent of the nation’s GDP. In 2019, two years after passage of President Trump’s $1.5 trillion tax cut, that number that fell to 16.5 percent.
But spending is the bigger problem in the long term, with the CBO expecting it to rise from 20.7 percent of GDP this year to 27.1 percent by 2049. Much of that increase is driven by higher health-care costs, with ballooning charges and the nation’s aging population expected to drive up spending on Medicare, the nation’s health insurance program for senior citizens.
The CBO’s projections of the nation’s debt-to-GDP ratio are slightly smaller than last year’s, in part because interest rates have remained lower than previously projected. The CBO’s report also reflects lower-than-expected spending over the past year on some federal expenses, such as fighting fires.
The highest U.S. debt-to-GDP ratio was 106 percent, reached in 1946. That number was prompted by a spending push to fund World War II, and other spikes in the debt have been driven by economic downturns.
But the United States is set to surpass that record in 2037, when the debt-to-GDP number reaches 108 percent, according to the CBO. The current high debt levels come amid a relatively healthy economy, suggesting a structural gap between how much the country collects in taxes and how much it spends.
The debt-to-GDP measurement compares the overall amount of debt held by the federal government with the size of the U.S. economy. Economists use the comparison, which takes into account inflation and overall economic growth, to illustrate the scope of the deficit.
The report also points to a major decision for lawmakers over whether to extend much of the 2017 Republican tax law, which included numerous provisions set to expire in 2025. Twenty-three provisions in the tax law related to individual income taxes are set to end that year, according to the Tax Foundation, a conservative think tank.