Our debt reduction plan would avoid the growth of a crushing federal debt burden that would largely fall on millennials and future generations. Relative to CBO’s latest long-term budget baseline projections, the plan would reduce debt as a share of GDP from a projected level of 166% to 99% by 2054.
Those projections, which CBO made in March of 2024, showed the debt rising from its current level of 99% of GDP to 166% of GDP in 2054. As alarming as that picture of soaring debt is, it is probably an optimistic scenario due to the way CBO constructed its baseline. A more realistic baseline is likely to result in debt exceeding 200% of GDP in 30 years.
CBO’s baseline generally provides budget projections that incorporate the effects of current laws. There are many factors that go into the development of CBO’s baseline but two in particular stand out with respect to CBO’s March 2024 long-term budget baseline. First, to reflect current law, CBO assumed the enforcement provisions of the Fiscal Responsibility Act of 2023 (FRA) (which set spending limits on discretionary spending for two years) would lower discretionary spending significantly. The result is that discretionary spending declines from 6.2% of GDP in 2024 to 4.9% of GDP by 2054. Second, it assumed that the Tax Cuts and Jobs Act of 2017 would expire in 2025, as provided under current law, resulting in large tax increases primarily on individuals. These assumptions would grow revenue from 17.5% of GDP in 2024 to 18.9% of GDP in 2054.
In the case of the FRA, while the law called for significant reductions in non-defense discretionary spending, Congressional leaders and the Biden Administration made separate agreements not reflected in the law, augmenting this spending. Congress completed the FY 2024 appropriations process on March 23, 2024, which included many of these augmentations of non-defense spending and emergency appropriations.
CBO ran an alternative scenario to its March 2024 long-term budget baseline that assumed tax revenues would remain at their current levels as a percentage of GDP and that discretionary spending would be increased to its historical average of the past 30 years. In that scenario, the debt rises to 294% of GDP by 2054, which is clearly unsustainable. For this alternative projection, CBO assumed revenues did not grow as a share of GDP and were instead held to their 30-year historical average of 17.2 percent of GDP. They also assumed discretionary spending (spending subject to annual appropriations by Congress) would rise to its 30-year historical average which would lead to an increase in spending of nearly a full percentage point as a share of GDP or roughly $280 billion, approximately a 15% increase over 2024 levels. Even so, Congress seems unlikely to reduce discretionary spending and increase taxes as envisioned in CBO’s March 2024 long-term baseline projections.
The other revealing aspect of CBO’s alternative scenario is that it illustrates the clear driving force of unsustainable debt: mandatory spending for programs such as Social Security, Medicare, and Medicaid whose spending is growing faster than the rate of the economy. That, combined with the soaring cost of financing a debt, is putting the Federal budget and the U.S. economy at serious risk over the long-run unless Congress acts.
While a more realistic projection of long-term debt indicates that the Millennial Debt Foundation plan will not reduce debt to 99% of GDP by 2054, the plan still would reduce the debt by over 60% over 30 years. It also makes gradual and critical long-term reforms that will continue to reduce debt burdens, ensure the federal government can finance critical entitlement programs such Social Security, Medicare, and Medicaid for current and future generations, and remove this growing and serious threat to the U.S. economy and way of life.