Monday , April 6 2020
Home / John B. Taylor / Still Exploding After All These Years

Still Exploding After All These Years

Summary:
For the past nine years on Independence Day (see here and here for example), I’ve plotted the most recent long-term projection of the federal debt by the Congressional Budget Office as a reminder that it’s as explosive as the Fourth of July fireworks seen all over America. The CBO just released its latest long-term forecast, and while their shortening of the horizon and eliminating the alternative fiscal scenario may blur the underlying problems, the message, like the fireworks display, is still loud and clear: The debt is still exploding after all these years. The figure shows three explosions: Net interest payments on the debt as a share of GDP and the debt as a share of GDP before and after the “Tax Cuts and Jobs Act of 2017.” The chart is constructed from CBO forecasts for 2018

Topics:
John Taylor considers the following as important:

This could be interesting, too:

John Taylor writes Make Section 2201 of the CARES Act Work in Practice

John Taylor writes Structural, Not Cyclical, Budget Reform

John Taylor writes Congressional Testimony on the Costs of Rapidly Growing Government Debt

John Taylor writes A Decade of July 4th Debt Explosions: Are They Getting Less Spectacular?

For the past nine years on Independence Day (see here and here for example), I’ve plotted the most recent long-term projection of the federal debt by the Congressional Budget Office as a reminder that it’s as explosive as the Fourth of July fireworks seen all over America. The CBO just released its latest long-term forecast, and while their shortening of the horizon and eliminating the alternative fiscal scenario may blur the underlying problems, the message, like the fireworks display, is still loud and clear: The debt is still exploding after all these years.

The figure shows three explosions: Net interest payments on the debt as a share of GDP and the debt as a share of GDP before and after the “Tax Cuts and Jobs Act of 2017.” The chart is constructed from CBO forecasts for 2018 to 2048 in 2018 Long-Term Budget Outlook released on June 26, 2018.Still Exploding After All These Years

Note first that net interest payments quadruple as a share of GDP over the period, rising from 1-1/2 percent to 6 percent, due to a combination of rising interest rates and rising debt. This will bring net interest payments to 21 percent of the federal budget. If interest rates on the debt rise to level higher than the 4.4 percent assumed in the forecast, then the debt situation will be even worse.

Second, note that the debt was on an explosive path before the 2017 Tax Act and it is still on an explosive path even though, and this is important to note, the debt is a couple of percentage points lower as a share of GDP in 2048 with forecast after the 2017 Tax Act.

While the CBO no longer goes out more than 30 years, the scary trajectory for the rest of the century is unmistakable.  In my view, as in most of the past decade, there is not enough attention paid to this problem in Washington. The problem is increased entitlement growth, not the recent tax reform, as was pointed out in a recent oped by Michael Boskin, John Cochrane, John Cogan, George Shultz and me in the Washington Post.

John Taylor
John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University. He formerly served as the Director of the Stanford Institute for Economic Policy Research where he is currently a Senior Fellow. He is also the George P. Shultz Senior Fellow in Economics at the Hoover Institution.

Leave a Reply

Your email address will not be published. Required fields are marked *