Last month, I issued a statement about the budget and economic outlook for the next decade. In that statement, I said our projections suggest that, over the long term, changes in fiscal policy would need to be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt.
I am frequently asked how the nation can make such changes. To illustrate one way to do so, I explained in a recent presentation what would happen if lawmakers reduced primary deficits—that is, revenues minus noninterest outlays—from their projected size over the 2024–2033 period (3.0 percent of GDP) to their historical average over the past 50 years (1.5 percent of GDP). That would involve reducing the primary deficit by about $5 trillion over the next decade. Implementing such a change would nearly stabilize the growth of federal debt held by the public as a percentage of GDP over the next 10 years. By comparison, in CBO’s baseline projections, federal debt as a share of GDP grows from 98 percent at the end of 2023 to 118 percent at the end of 2033.
Returning primary deficits to their historical average is not a recommendation by CBO. It is a case study I used to explain what making such changes over 10 years would involve, while acknowledging that the fiscal situation is more challenging over longer periods. Lawmakers have specified a variety of goals for deficits and debt, reflecting their priorities.
Reducing the primary deficit by about $5 trillion over 10 years could be undertaken in many ways. To illustrate, I’ve shown Table 1 from Options for Reducing the Deficit, 2023 to 2032—Volume I: Larger Reductions, which we published in December 2022 (see below). If lawmakers selected 10 of those options and those 10 options reduced the deficit by an average of $500 billion each over the next 10 years, that would add up to $5 trillion in primary deficit reduction.
Projected Savings From Options For Reducing the Deficit
Enacting options that reduced the primary deficit by about $5 trillion would also reduce net interest costs by roughly $500 billion over the next 10 years. The amount would depend on when the options were implemented; the sooner the primary deficit was reduced, the greater the savings on net interest costs would be. In 2033, such reductions would lower the amount of net interest payments to about 3.3 percent of GDP, compared with 3.6 percent of GDP in CBO’s baseline projections. The total deficit would be roughly 5 percent of GDP, compared with 7.3 percent of GDP in CBO’s baseline projections. The options are intended to illustrate what would be involved in making changes of this magnitude. Many other approaches to reducing the deficit could be used.
Phillip L. Swagel is CBO’s Director.