- September 25, 2013: Congressional Budget Office releases a report on the debt ceiling estimating that "depending on the amount and timing of cash flows, the Treasury might be unable to fully pay its obligations anytime from October 22 on. Which of the government’s various financial obligations would be paid and which would not be paid is unclear."
Current Debt Level:
Latest Debt Projections:
- CBO slide presentation explaining why the growing debt is unsustainable (Dec. 2013)
- CBO's 2013 Long-Term Budget Outlook
- CBO's May 2013 Updated Budget Projections
Unsustainable Long-Term Debt:
September 17, 2013: The nonpartisan Congressional Budget Office (CBO) releases The 2013 Long-Term Budget Outlook. Key findings and projections: "Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing federal debt to soar. Federal debt held by the public is now about 73 percent of the economy’s annual output, or gross domestic product (GDP). That percentage is higher than at any point in U.S. history except a brief period around World War II, and it is twice the percentage at the end of 2007. If current laws generally remained in place, federal debt held by the public would decline slightly relative to GDP over the next several years, CBO projects. After that, however, growing deficits would ultimately push debt back above its current high level. CBO projects that federal debt held by the public would reach 100 percent of GDP in 2038....Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.....
"Budget deficits would gradually rise again....mainly because of increasing interest costs and growing spending for Social Security and the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies to be provided through health insurance exchanges)....The pressures of an aging population, rising health care costs, and an expansion of federal subsidies for health insurance would cause spending for some of the largest federal programs to increase relative to GDP. By 2023, CBO projects, the budget deficit would grow to almost 3½ percent of GDP under current law, and federal debt held by the public would equal 71 percent of GDP and would be on an upward trajectory.
"How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to pay U.S. debt obligations, making it more difficult or more expensive for the government to borrow money. Moreover, even before that point was reached, the high and rising amount of debt that CBO projects under the extended baseline would have significant negative consequences for both the economy and the federal budget:
- Increased borrowing by the federal government would eventually reduce private investment in productive capital...
- Federal spending on interest payments would rise...
- The government would have less flexibility to use tax and spending policies to respond to unexpected challenges, such as economic downturns or wars.
- The risk of a fiscal crisis—in which investors demanded very high interest rates to finance the government’s borrowing needs—would increase."
- A stable debt level is generally regarded as 60 percent of GDP.
- Debt held by the public, generally regarded as the most accurate measure of a nation's debt burden, includes money borrowed by foreign investors, mutual funds, state and local governments, commercial banks, insurance companies and individuals, and does not include money held by the social security and other governmental trust funds.
The two major bipartisan plans to stabilize the long-term U.S. public debt were developed by the President's Commission (usually referred to as "Simpson-Bowles") and the Bipartisan Domenici-Rivlin Debt Reduction Task Force. Link to both plans below.
- Simpson-Bowles plan to achieve long-term debt stabilization
- Domenici-Rivlin bipartisan consensus plan to achieve long-term debt stabilization
- CRFB's Comparison of Numerous Other Deficit Reduction Plans
- CBO: Reducing the Deficit - Spending and Revenue Options (an outstanding nonpartisan resource for reviewing a broad array of deficit reduction options - November 2013)
- CBO: Choices for Deficit Reduction (November 2012)
Additional Resources on Deficits and Debt
- CRS: The Budget Control Act of 2011: Effects on Spending and the Budget Deficit
- Impact of Major Legislation on Budget Deficits: 2001 - 2010
- Overview and History of the Federal Debt
- Congressional Budget Office: Long-Term Budget Outlook
- Government Accountability Office (GAO): Federal Debt and the Fiscal Outlook
- Overview of Long-term Budget Outlook (2012 Testimony)
- CRS: Sovereign Debt in Advanced Economies
- GAO: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue"
The great fiscal turnaround of the 1990s can be attributed to the enactment of three major deficit reduction agreements in 1990, 1993, and 1997 as well as the economic effects of the "Internet boom."
Growth in Debt Held by the Public FY 2001-2011
Debt held by the public (i.e. U.S. debt held by individuals, institutions, and governments) grew dramatically during the last decade due to a number of factors: (1) The Bush tax cuts of 2001; (2) The 2001 Recession; (3) The Wars in Iraq and Afghanistan, which were financed by borrowing; (4) Entitlement growth including the addition of a Medicare prescription drug benefit, financed by borrowing; and (5) The financial crisis and the Great Recession which significantly reduced federal revenues and increased federal benefits and stimulus spending.