Wednesday, December 15, 2010

US Debt Held By Public At 100 Percent Of GDP By 2020: CBO Projects

From CBO study, "Federal Debt and Interest Costs":
The past few years have seen a sharp rise in the debt of the federal government. At the end of fiscal year 2008, debt held by the public amounted to $5.8 trillion--equal to 40 percent of the nation's annual economic output (gross domestic product, or GDP), a little above the 40-year average of 35 percent. Since then, debt held by the public has shot upward, surpassing $9 trillion by the end of fiscal year 2010--equal to 62 percent of GDP, the highest percentage since shortly after World War II. The surge in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession and turmoil in financial markets. However, the growing debt also reflects an imbalance between spending and revenues that predated those economic developments.

At the same time, a sharp drop in interest rates has held down the amount of interest that the government pays on that debt. In 2010, net interest outlays totaled $197 billion, or 1.4 percent of GDP--a smaller share of GDP than they accounted for during most of the past decade.

The Congressional Budget Office (CBO) projects that, under current law, debt held by the public will exceed $16 trillion by 2020, reaching nearly 70 percent of GDP. CBO also projects that interest rates will go up. The combination of rising debt and rising interest rates is projected to cause net interest payments to balloon to nearly $800 billion, or 3.4 percent of GDP, by 2020.

Many other outcomes are possible, however. If, for example, the tax reductions enacted earlier in the decade were continued, the alternative minimum tax was indexed for inflation, and future annual appropriations remained the same share of GDP that they were in 2010, debt held by the public would total nearly 100 percent of GDP by 2020. Interest costs would be correspondingly higher. [Emphasis added]
The complete CBO study is available on the CBO site here, on Scribd here or embedded below.

Federal Debt and Interest C...

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