![]() Even projections of future debt paths, like that shown in Figure 2 (Panel 1) are limited by time truncation. However, this measure is inherently “backward looking” and does not account for future expenditures relative to tax revenue. 1įorward-Looking Measures of Federal IndebtednessĪt the end of 2022, debt held by the public is estimated by the CBO and PWBM to be about $24 trillion, or 100 percent of GDP. However, spending on federal health care programs – Medicare and Medicaid-plus-SCHIP – are projected to increase most rapidly through 2050. Panel 2 shows that federal purchases of goods and services, Social Security, and Medicare constitute the largest expenditures today. Panel 1 of Figure 2 shows that payroll taxes and taxes on labor and capital contribute the most to total federal receipts. The primary deficit shares indicate the amount of expenditure reductions, revenue increases, or some combination of the two, that would be required to achieve primary budget balance in future years.Ĭontinuation of current federal budget policies would escalate total federal debt held by the public from about 100 percent of GDP today to almost 225 percent by 2050.įigure 2 shows projected federal receipts (Panel 1) and expenditures (Panel 2) as a share of projected GDP. Primary deficits increase from about 17 - 18 percent of total receipts during the 2020s to more than 25 percent by 2050. Primary deficits increase from about 12-13 percent of total expenditures during the 2020s to more than 20 percent by 2050. ![]() Source: Author’s calculations based on PWBM’s microsimulation and CBO budget aggregates as of February 2021. The overall federal fiscal imbalance is decomposed into prospective net tax contributions by population subgroups distinguished by gender, education, race, and birth year. federal fiscal imbalance based on a “bottom up” construction of future taxes and expenditures based on projections of the future population, labor force, productivity, federal purchases, transfers, and taxes and total output. This brief reports PWBM’s micro-founded measure of the U.S. By construction, the fiscal imbalance must be zero for a fiscal policy to be sustainable without future changes (“fiscal balance”). A more complete measure of the federal government’s financial condition-the “fiscal imbalance”-equals the sum of existing debt and future overspending relative to tax receipts. Government debt is one measure of the federal government’s financial condition but is inherently backward looking. Just like all individuals and businesses, the federal government is subject to a budget constraint: It must fund all expenditures, current and future, from its tax and non-tax receipts over time. Long-Term Financial Implications of Current Federal Budget Policies We project that growth of a key productivity measure central to government finances-the “total skill-adjusted adjusted labor input”-will fall by more than half over the next three decades, from 1.1 percent per year during the past decade to 0.7 percent per year going forward. This framework captures how projected changes in demographics and labor-force dynamics impact the economy, tax revenues and means-tested spending. These estimates are supported by a new “bottom up” accounting, demographics, and economics framework. Achieving fiscal balance would require the federal government to permanently increase tax revenues by over 40% or reduce expenditures by 30% or some combination of both. ![]() fiscal policy is in permanent imbalance as current debt plus projected future spending outstrips future tax revenue. Changing demographics will reduce future economic growth.Ĭurrent U.S. Summary: Under current law, we project that national debt will rise to 225% of GDP by 2050 and continue to rise thereafter. ![]()
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