- According to the latest budget outlook from the Congressional Budget Office, federal debt will grow to nearly twice the size of the U.S. economy by 2050.
- Spending on economic aid throughout the coronavirus pandemic drove public debt to its highest level since World War II.
- Rising borrowing costs and rising interest rates will push debt to 104% of gross domestic product next year and 195% of GDP in three decades, the CBO said.
- The estimates raised expand the arguments between federal budget hawks and those advocating increased spending to spur economic growth after the pandemic.
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High borrowing costs and spending on economic relief will push federal debt to nearly double the size of the U.S. economy, the Congressional Budget Office said in a report released Monday.
Although the effects of the coronavirus pandemic are expected to wear off over the next year, fiscal stimulus-related deficits will push debt to levels never seen before. The CBO expects federal debt to reach 98% of U.S. gross domestic product this year and 104% in 2021.
By 2050, increased spending and borrowing costs will bring this share to 195%, just below double the total size of the economy. This is up from the 180% level forecast in January. For comparison, the previous record was 106% just after World War II.
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“Interest rates are expected to remain low for several years as the economy recovers from the pandemic, lowering borrowing costs. But persistent deficits drive up the cost of servicing the debt, ”Phillip Swagel, director of CBO, said in a statement.
The non-partisan agency report projects federal deficits, debt, spending and revenues over the next 30 years if current laws and spending generally remain the same. Although stimulus needs decline as the virus is contained, the CBO expects spending to drop from 21% of GDP in 2019 to 31% in 2050. Part of the increase will be due to the hike of health and social security program costs, according to Monday’s report.
The thrown estimates extend the arguments for and against almost unlimited public spending. While some argue that the expected size of debt is unsustainable and could lead to fiscal collapse, others argue that increased spending can boost growth as long as inflation is contained.
At least for this whole week, lawmakers and economists who oppose further relief spending are expected to prevail. Congress remains deadlocked in negotiations over new stimulus measures, and new obstacles to passing a federal budget are likely to distract from those discussions. Additionally, the push by Senate Republicans to replace Supreme Court Justice Ruth Bader Ginsburg will almost certainly eclipse interest in passing new Aids.
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