US Debt to Surpass World War II Levels in Four Years, CBO Warns

The US government is projected to exceed its record debt levels set after World War II within four years, according to a recent warning from the Congressional Budget Office (CBO). Despite slightly improved deficit projections for the next decade, the agency highlights the unsustainable trajectory of the national debt.

The CBO's estimates do not account for revenue losses from President-elect Donald Trump's proposed extensions of expiring provisions in his 2017 tax cuts and further tax reductions. As such, the forecasts anticipate an increase in tax revenue due to the expiration of tax reductions at the end of the year.

For the current year, the projected budget deficit has decreased to $1.87 trillion from $1.94 trillion in June. However, this improvement is primarily attributed to stronger economic growth in 2024 than previously anticipated.

Despite the adjustments, the CBO's projections indicate escalating deficits and debt, sparking concerns among fiscal conservatives and Democrats alike. The CBO Director, Phillip Swagel, acknowledged that "the fiscal situation is daunting, the debt trajectory is unsustainable."

By 2029, the total US government debt held by the public is projected to reach 107% of GDP, surpassing the 106% record set in 1946. By 2035, the debt is forecast to be $52.1 trillion, or 118.5% of GDP.

The rising debt burden is largely driven by Social Security and Medicare costs associated with the retiring Baby Boom generation, as well as increased interest payments on the debt. The CBO emphasized the difficulty of balancing the budget without reducing Social Security benefits or raising taxes.

Higher Treasury yields have led to increased debt servicing costs for the US, which are projected to reach 3.2% of GDP in 2025. The CBO estimates that net interest payments will climb to 6.1% of GDP by 2035.

The CBO expects US economic growth to moderate in 2025 to 1.9% and forecasts unemployment to rise to an average of 4.3% this year, up from 4.1% last month.