What Happens to the Debt if Congress Doesn't Cut Spending or Raise Taxes?

When the Congressional Budget Office (CBO) publishes its annual outlook for the federal budget it analyzes two scenarios: a baseline in which current federal spending and tax laws remain unchanged, and an alternative fiscal scenario in which policies that are set to expire under current law are extended.

The alternative fiscal scenario makes the following assumptions:

• That caps on discretionary spending were lifted and appropriations were increased at the rate of inflation every year after 2019. (Discretionary appropriations fund executive branch agencies like the Dept. of Defense and the Treasury, so this excludes mandatory spending on Medicare & Social Security.)
• That individual income tax provisions in the 2017 Tax Cuts and Jobs Act regarding tax rates, deductions, plus the size and refundability of the child tax credit were extended.
• That several taxes imposed under the Affordable Care Act (aka Obamacare) which have been postponed by Congress ― including the medical device tax, the health insurance provider tax, and the so-called “Cadillac tax” on high premium plans ― were repealed.

The national debt is expected to grow by $11.6 trillion over 10 years under the baseline scenario, but under this alternative scenario it’d increase by additional $3.8 trillion through 2029, at which point debt held by the public would exceed the U.S. gross domestic product (GDP) for the first time since 1946 as this chart from the CBO shows:

This chart from a presentation by CBO Director Keith Hall at the University of Oregon’s Lundquist College of Business and Wayne Morse Center for Law and Politics shows how those policy alternatives would contribute to deficits over the next decade:

— Eric Revell

(Photo Credit: iStock.com / Muni Yogeshwaran)