Research Report If Not Now, When? New Estimates of the Federal Budget Outlook
Alan J. Auerbach, William G. Gale, Aaron Krupkin
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We provide estimates of the federal budget outlook based on new Congressional Budget Office (CBO) analysis. CBO projects a debt-to-GDP ratio of 93 percent by fiscal year 2029 under current law, up from 78 percent today. Under a “current policy” scenario similar to CBO’s alternative fiscal scenario – in which policymakers routinely extend temporary provisions, as they have in the past – we project a debt-to-GDP ratio above 106 percent by 2029, which would be the highest ratio in U.S. history. Notably, the projections include the only sustained period when the U.S. has had full-employment deficits around and above 4 percent of GDP. After the first decade, fiscal pressures mount, with the debt-to-GDP ratio rising to 193 percent by 2049 under current policy. To ensure the debt-to-GDP ratio 30 years from now does not exceed the current level would require a combination of immediate and permanent spending cuts and/or tax increases totaling 3.9 percent of GDP under current policy. In 2019, this represents about a 21 percent cut in non-interest spending or a 24 percent increase in tax revenues. Over the longer term, the required adjustment would be even larger.
This research report was originally published by the Brookings Institution on February 11, 2019.
Research Areas Taxes and budgets
Tags Federal budget and economy
Policy Centers Urban-Brookings Tax Policy Center