US Debt on Track to Surpass Post-World War II Levels in 4 Years

The Congressional Budget Office (CBO) has projected that the US government will surpass its record debt levels set after World War II within just four years. This alarming prediction comes despite the CBO's revised projections for lower deficits in the coming decade.

The new estimates do not account for potential revenue losses resulting from President-elect Donald Trump's proposed tax cut extensions. The nonpartisan CBO adheres to current law in its forecasts, projecting increased tax revenues from the expiration of tax reductions at the end of this year. However, most private analysts anticipate an extension.

For the current year, the deficit projection has decreased from $1.94 trillion in June to $1.87 trillion. This translates to 6.2% of US gross domestic product (GDP). The improved outlook primarily stems from stronger-than-expected economic growth in 2024. The larger GDP base translates into higher income and tax collections throughout the decade.

Despite the adjustment, the CBO forecasts paint a grim picture of escalating deficits and debt, fueling arguments for both fiscal conservatives advocating for spending cuts and Democrats opposing Republican tax reduction plans.

"It doesn't change the policy picture," said CBO Director Phillip Swagel. "The fiscal situation is daunting, the debt trajectory is unsustainable. It's just the economy is a bit bigger than we thought it was last June, and therefore there's more revenue."

Total US government debt is projected to reach 107% of GDP by 2029, exceeding the 106% record set in 1946. By 2035, total debt is estimated to reach $52.1 trillion, or 118.5% of GDP.

Extending the provisions in Trump's 2017 tax law would increase deficits by $4.6 trillion over 10 years, according to a CBO estimate from May 2023. This estimate does not include additional tax cuts promised by Trump.

The rising debt burden is attributed primarily to Social Security and Medicare costs associated with the retirement of the Baby Boom generation, as well as increasing interest payments on the debt. Both Democratic and Republican lawmakers have resisted lowering Social Security benefits despite the rising costs. Economists contend that balancing the budget may require reducing retirement benefits or raising taxes.

Higher yields on Treasury securities have led to rising debt servicing costs, projected to reach 3.2% of GDP in 2025. The CBO estimates that net interest payments will continue to increase to 6.1% of GDP by 2035.

The CBO anticipates a moderation in US economic growth to 1.9% in 2025. The agency forecasts unemployment to rise to an average of 4.3% this year, up from 4.1% in January 2023.