The national debt will nearly double by 2051 if taxing and spending stay the same, CBO says

US capitol
The Senate side of the Capitol is seen in Washington, early Monday, Nov. 9, 2020.

  • A new report from the CBO forecasts the federal debt to nearly double to 202% of GDP by 2051.
  • The CBO sees the government’s budget deficit declining after the pandemic before rising again.
  • The outlook hinges on taxing and spending laws staying the same, the CBO said.
  • Visit the Business section of Insider for more stories.

The federal government’s debt pile is on track to nearly double over the next three decades, according to the nonpartisan Congressional Budget Office (CBO).

Government debt swelled over the past year as lawmakers passed stimulus bills aimed at helping Americans through the COVID-19 recession. The increased spending led federal debt to reach 100% of gross domestic product at the end of 2020.

Should current laws for taxing and spending stay the same, that share is estimated to reach 102% of GDP by the end of this year, the CBO said in its long-term outlook report. Federal debt would then reach a record-high 107% of GDP in 2031 and nearly double to 202% of GDP by 2051, the office added.

The federal budget deficit – the amount that government spending exceeds tax income – is projected to fall to 10.3% of GDP this year from 14.9%, still the second-highest level since 1945. While it will stay elevated, the shortfall will decline as as pandemic-related expenses fade, the CBO said. Deficits will total 5.7% of GDP in 2031 and soar to 13.3% by 2051, according to the report.

The report doesn’t account for the $1.9 trillion stimulus package currently making its way through the Senate. House Democrats approved the measure on Saturday, and President Joe Biden has indicated he aims to sign the bill before expanded unemployment benefits expire on March 14.

Officials including Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell have repeatedly sought to dispel fears that the government won’t be able to finance its own debt. Near-zero interest rates ensure that, at least for now, the government’s cost of borrowing remains relatively low.

Yet the recent jump in Treasury yields signals those rates could climb sooner than previously expected. After the bond market saw elevated volatility last week, investors continued dumping government bonds on Thursday, betting on new stimulus to fuel a swift recovery and stronger inflation. The Treasury market is now pulling forward expectations for a rate cut from after 2023 to sometime in 2022.

Higher rates, when coupled with surging debt, can place the government in a compromised position, the CBO said.

“A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the US dollar, making it more costly to finance public and private activity in international markets,” the office added.

The CBO’s report could give Republicans more firepower with which to slam Democrats’ stimulus proposal. Senate Democrats advanced the bill on Thursday in a party-line vote, starting a lengthy debate process that Republicans are set to use as a roadblock for the plan’s passage. Discussion will be limited to 20 hours, teeing up a final vote for the weekend after a marathon amendment process.

The gloomy debt projections also don’t account for the large-scale infrastructure plan Biden aims to pass. The president has already started talks with lawmakers about a multitrillion-dollar infrastructure push that would further boost economic growth coming out of the pandemic.

If it passes, the proposal stands to give the national economy a shot in the arm – and to further increase the country’s debt pile.

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Without a stimulus, unemployment could stay high for a decade

Unemployment insurance filing
A man fills out paperwork while waiting for his number to be called at an unemployment event in Tulsa, Oklahoma on July 15, 2020.

  • The Congressional Budget Office projects that unemployment won’t drop to pre-pandemic levels for a decade.
  • But an additional stimulus could have a major impact on unemployment.
  • Economists say the projections show the need for more relief.
  • Visit Business Insider’s homepage for more stories.

The US unemployment rate may not reach pre-pandemic levels for the rest of the decade without additional stimulus from the federal government, according to projections from the nonpartisan Congressional Budget Office (CBO). 

As Insider’s Joseph Zeballos-Roig reported, that analysis sees the unemployment rate falling to 5.7% this year, and 5% in 2022. It’s projected to hit 4% around 2025. In February 2020, before the economic shock from the coronavirus pandemic, the unemployment rate was 3.5%. 

Overall, the CBO projects that the total number of people employed in the US will reach pre-pandemic levels in 2024. The CBO projections also see GDP returning to pre-pandemic levels in mid-2021, with real GDP growing 3.7% this year.

But those projections don’t take into account any additional government spending on the pandemic; as Zeballos-Roig reported, the analysis itself could come into play during stimulus negotiations.

President Biden’s proposed stimulus could have a major impact on unemployment

David Kelly, the chief global strategist at JPMorgan Funds, previously wrote that President Joe Biden’s stimulus plan could drastically lower unemployment. In a “conservative” simulation run by JPMorgan of the $1.9 trillion relief package, which assumed that the ultimate cost was $1.5 trillion and $1.2 trillion was dispersed by September, unemployment dipped below 5% and “the Biden rescue plan could boost nominal GDP growth to 11.4% year-over-year by the end of this year.”

In a note on Monday, Kelly further emphasized the impact that the stimulus could have on unemployment levels, especially as GDP levels grow.

“A statistical model of the relationship between real GDP growth and employment suggests that this could boost payroll employment by close to 10 million jobs by the second quarter of 2022,” Kelly writes. But, he added: “It needs to be emphasized, of course, that this historical relationship is not that strong a guide in a very rapidly growing economy and that the inevitable delays in restarting and setting up businesses could delay this hiring.”

Another factor in shrinking unemployment rates is the number of people of working age actively seeking employment: During the pandemic, fewer people have immigrated to the US, and millions of Americans have stopped looking for work, meaning we can assume “that the labor force by the second quarter of 2022 may be no higher than it was in the fourth quarter of 2019.”

That crashing labor force – combined with quick jobs growth – could lead to a quickly sinking unemployment rate. For instance, Kelly said that adding 10 million jobs and four million people to the labor force could bring the unemployment rate to 2.8%.

But a hot jobs market like that, where wages are growing and it’s harder to hire people, could also bring back in people like retirees and new immigrants.

As Kelly writes, “the exercise is useful because it re-emphasizes the potential for the combination of pandemic recovery and massive fiscal stimulus to overheat the economy.”

Some economists agree, saying that the CBO projections underscore the need for more stimulus.

“The unemployment rate masks exits from the labor force – especially women who are caring for children who often are not in school,” Gabriel Mathy, an assistant professor of economics at American University, said in a statement. “For those people that are not counted in the unemployment statistics, we’re going to need to run the economy hot.” 

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