US government debt will surpass the economy's size in 2021 even without Biden's new stimulus, CBO says

Advertisement
US government debt will surpass the economy's size in 2021 even without Biden's new stimulus, CBO says
J. Scott Applewhite/AP Photo
  • The Congressional Budget Office expects federal debt to reach 102% of US GDP in 2021.
  • The estimate doesn't account for the $1.9 trillion stimulus plan Democrats are set to pass.
  • The CBO sees the debt pile then shrinking for a few years before rising into the next decade.
Advertisement

Total US public debt is set to overtake the size of the national economy in 2021 even without the $1.9 trillion stimulus plan sought by President Joe Biden, according to the Congressional Budget Office.

Federal debt is projected to reach 102% of US gross domestic product through the end of the year, the nonpartisan agency said in a Thursday report. That's up slightly from the end of last year when the share reached 100%.

The debt pile is expected to then shrink "for a few years" after 2021 before rising further. The CBO estimates that, by 2031, the national debt will reach 107% of GDP. That level would be the highest in US history.

The forecast is based on laws in effect as of January 12, meaning the relief package backed by Democrats would further lift the share of public debt. Biden and Congressional Democrats are pushing to pass the aid package through budget reconciliation, a process that would allow 50 Senate Democrats to approve the measure without Republican support.

The stimulus plan includes $1,400 direct payments, an expansion to federal unemployment benefits, and funding for state and local governments. Democrats have argued that the risks of passing too-little stimulus are greater than those associated with passing a large-scale package.

Advertisement

Yet the CBO's estimates give Republicans more ammunition for arguing additional aid only exacerbates national debt pressures.

Even without the new aid, the federal budget deficit is projected to reach $2.3 trillion in 2021, according to the CBO. That's down roughly $900 billion from the sum seen last year but still set to be the second-largest deficit since 1945. Much of the 2020 budget shortfall came from the $2.2 trillion CARES Act and other economic relief packages.

Deficits are then expected to average $1.2 trillion a year from 2022 to 2031, the CBO said.

The agency forecasts real GDP will grow by 3.7% through the year as vaccination and reopenings lift economic activity. Growth is then expected to average 2.6% from 2021 to 2025 and fall to 1.6% from 2026 to 2031, the CBO added.

Read more: Barclays says buy these 33 beaten-down stocks that are perfectly poised to capitalize on the reopening of the economy in the years ahead

Advertisement
{{}}