Federal debt held by the public will nearly double as a percentage of gross domestic product over the next 30 years, according to projections from the Congressional Budget Office.
Federal debt held by the public in 2008 was equal to 39 percent of GDP, and has risen to 75 percent of GDP today. The budget office predicts this debt will rise to 86 percent of GDP in 2026 and to 141 percent in 2046, which would be the highest ratio of debt to GDP ever recorded. The current high ratio of 106 percent was recorded just after World War II.
The debt is projected to increase because the government is spending outside of its means, especially on entitlement programs like Social Security and Medicare. The government is also paying increasing amounts of interest on its debt.
Social Security and Medicare spending alone is projected to account for about half of all federal noninterest spending in the next 30 years. "Federal outlays for those two programs made up almost 40 percent of the government’s noninterest spending, on average, during the past 10 years, compared with 16 percent 50 years ago," the report states.
The budget office projects that the Social Security program will be insolvent in the next few years. According to their projections, the Disability Insurance trust fund will be exhausted in fiscal 2022 and the Old-Age and Survivors Insurance trust fund will be exhausted in calendar year 2030.
Federal spending on major health care programs such as Medicare, Medicaid, and the Children’s Health Insurance Program as well as health insurance purchased through the Obamacare exchanges will rise to 8.9 percent of GDP in the next 30 years, 60 percent higher than it is today. Medicare is the biggest driver of spending in this category as it accounts for about three-quarters of the increase in federal spending as a share of GDP.
The federal government’s net interest costs will lead to an increase in debt. "The first and most important [reason] is that interest rates are expected to be higher in the future than they are now, making any given level of debt more costly to finance, " the report states. "The second reason is the projected increase in deficits: The larger they are, the more the government will need to borrow."
Thile the budget office’s numbers are dire, they actually underestimate the growth of federal debt in the coming decades, according to an analysis from the Freedom Partners Institute.
The institute found that the Congressional Budget Office’s report overlooked intra-governmental debt that is earmarked to pay for Social Security and Medicare and excludes "gross debt" from its calculations, using "public debt" instead.
"Based on more accurate estimating techniques, we’ve determined that the gross federal debt will nearly double by 2030 (from $19.3 trillion to $37.8 trillion), reaching 116 percent of GDP," Freedom Partners stated. "These debt projections show that we are on the path to bankruptcy—with an economic fate similar to debt-devastated countries like Greece and Argentina, and most recently, our own territory of Puerto Rico."