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March 10, 2021

CBO's 2021 long-term budget outlook indicates pandemic has significantly worsened the federal government's long-term fiscal imbalance

CBO's 2021 long-term budget outlook indicates pandemic has significantly worsened the federal government's long-term fiscal imbalance

On March 4, 2021, the Congressional Budget Office (CBO) released The 2021 Long-Term Budget Outlook. Due in large part to the COVID-19 pandemic and related policy, the CBO reports that the federal government's long-term fiscal imbalance has significantly worsened.

Federal debt held by the public in relation to the size of the US economy (as measured by gross domestic product (GDP)) reached 100% in 2020 and is projected to reach 105% by 2030, the highest since World War II (Figure 1). This ratio is projected to grow to 195% by 2050, with COVID-19-related policy and the associated economic recession increasing this ratio by 15 percentage points relative to where it otherwise would be. The debt-GDP ratio is projected to cross 200% in 2051.

The current CBO estimates on the long-term budget outlook exclude the additional $1.9 trillion in COVID-19 relief currently under consideration by Congress.

As seen in Figure 2, growth in federal spending is projected to outpace growth in federal revenues in the coming decades. Federal spending is projected to rise from 22.8% of GDP in 2030 to 31.3% by 2050, while federal revenues are projected to rise from 17.6% of GDP in 2030 to 18.4% in 2050. The growing imbalance is due to the rise in entitlement spending — Social Security and, especially, Medicare — and the consequent rise in interest costs on the federal debt.

Between 2021 and 2050, the CBO projects that Social Security spending will increase from 5.2% of GDP to 6.3%, spending on major health care programs (including Medicare) will increase from 5.8% of GDP to 9.3%, and interest on federal debt will increase from 1.4% of GDP to 8.2%. According to the CBO, federal spending for Social Security, Medicare, and Medicaid for people age 65 or older will account for about half of all federal non-interest spending by 2051, rising from about one-third in 2021.

Impact of increasing federal debt

The CBO reports that the large long-term increase in federal debt could have significant negative consequences for the US economy:

  • Decreased national saving and future income. Because increased federal debt crowds out private investment, labor productivity and real wages would be lower than otherwise.
  • Pressure for larger tax increases or spending cuts in the future. Since increased federal debt would result in higher federal interest payments, additional federal revenue would be required to provide the same level of government services or federal spending would need to be reduced.
  • Reduced ability to respond to domestic and international problems. Unexpected events such as recessions or foreign conflicts are often accompanied by significant increases in federal government spending. A long-term increase in federal debt may reduce the ability of the federal government to respond to such situations.
  • Greater chance of a financial crisis. CBO projects federal debt held by the public will increase to more than 200% of GDP in 2051. The CBO projection assumes that investors will continue to lend to the federal government and would do so at relatively low interest rates. A loss in investor confidence could be accompanied by a loss of access to capital markets or significant interest rate increases. The debt-to-GDP ratio at which such a situation might occur, however, is subject to considerable uncertainty.


Companies need to be aware that the long-term pressures on the federal government's finances persist and are a major driver of future policy. In addition to driving possible changes to federal entitlement programs, the long-term fiscal imbalance may be a driver for major changes in tax policy spending to raise additional revenue.


Contact Information
For additional information concerning this Alert, please contact:
Quantitative Economics and Statistics Group
   • Brandon Pizzola (
   • Aman Rai (
   • Robert Carroll (