The budget watch group noted that the Congressional Budget Office's (CBO) recent budget projections find that the country's debt will reach a record 110 percent of GDP (40.2 trillion U.S. dollars) by the end of fiscal year 2032, while the deficit will reach 6.1 percent of GDP (2.3 trillion dollars) and interest costs will total a record 3.3 percent of GDP (1.2 trillions).
"These current law projections may prove optimistic, however, since they assume policymakers will allow a number of temporary policies to expire, only grow discretionary spending with inflation, and won't pass any new deficit-financed legislation," the budget group said in an analysis.
According to the Budget and Economic Outlook: 2022 to 2032 released last week, the CBO's current law baseline assumes the Trump-era individual tax cuts in the Tax Cuts and Jobs Act expire at the end of calendar year 2025.
The budget group, however, said if the tax cuts are extended "permanently" and discretionary spending grows with GDP, deficits through fiscal year 2032 would be 3.1 trillion dollars higher and debt would reach a record 118 percent of GDP by 2032.
On top of this, policymakers may undertake several other costly fiscal actions, the group noted. They may continue various "tax extenders" and "health extenders," and Congress could pass a bill to expand veterans' compensation, a competition bill with funding for semiconductor production, and a bill providing additional funding for restaurants and other small businesses, among others. The Biden administration may consider extending the student loan repayment pause and broadly canceling some amount of student debt.
"Though it is unclear exactly how much many of these provisions will cost, a reasonable set of assumptions suggests they could add an additional 2.4 trillion dollars to budget deficits through fiscal year 2032 for a total of 5.5 trillion dollars of costs above current law. This would cause debt to reach a record 125 percent of GDP by 2032," the group said.
Even under current law, interest spending will rise significantly from 1.6 percent of GDP in 2022 to a record 3.3 percent in 2032, as the Federal Reserve tightens monetary policy, according to the CBO's projections.
"With extensions, interest would increase further to 3.5 percent by 2032, and with the additional actions, it would reach 3.6 percent," the budget group said. "If higher borrowing pushed up interest rates and dampened growth as expected, interest costs would rise even further."
The group said debt could rise much higher if policymakers extend several costly temporary policies and take on several other deficit-increasing policies in the near term. "Given our bleak fiscal situation, we can't afford more irresponsible actions," it added.
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