The Congressional Budget Office (CBO) has been making long-run budget projections since the 1990s. Since then, policies have changed—as have the economic and demographic assumptions underlying the analysis. But the lesson from these projections has remained the same: the United States is on an unsustainable fiscal path. That is to say, if policies are not eventually reformed, the public debt will grow persistently faster than the US economy.

Sources of uncertainty

Future budget outcomes depend on a mix of economic, demographic, and legislative factors. The further out we look, the harder they are to predict. Interest rates, inflation, and worker productivity are all important for budget projections. But they are notoriously hard to forecast. Small changes in birth rates, death rates, or immigration can also have major budget effects. And policy choices matter. Lawmakers have to make important decisions, like whether to extend tax cuts that are set to expire or how to address potential depletion of the Social Security Trust Funds. And, most of all, they must decide how to respond to unexpected future developments. Wars, pandemics, and financial crises can create unexpected budget pressures. Economic booms, slowing growth in health care costs, and reduced geopolitical tension can ease those pressures. Given these factors, long-term budget projections come with a great deal of uncertainty.

Causes of rising public debt

Despite these uncertainties, long-run budget projections typically show the public debt growing faster than the US economy. In other words, they imply that the debt-to-GDP ratio will rise over time. This increase is driven by four main factors: substantial deficits in the near-term, population aging, rising health care costs, and rising interest costs. Population aging puts pressure on Social Security, the largest program in the budget, and on Medicare and Medicaid, the largest health insurance programs. Per person health costs have risen faster than incomes, after adjusting for the population aging that has driven the projected rise in total spending. But this “additional cost growth” is difficult to forecast. After constituting most total health cost growth for decades, additional cost growth slowed abruptly in the 2000s. And no one knows whether the slowdown will last or will be a one-time phenomenon. Structural changes in the delivery of health care may hold down cost growth in the long run. On the other hand, additional cost growth might resume at historically familiar rates. In recent long-run projections, CBO has assumed that additional cost growth has indeed resumed, but at a rate lower than the historical average.

Updated January 2024