CBO’s latest report predicts America will soon be in more debt than ever. The problem is, it’s likely much worse than they’re saying.

The Congressional Budget Office (CBO) recently released its annual debt and deficit forecasts for the federal government, and the numbers are bleak.

Deficits will continue to soar, and the national debt will reach record-breaking levels by 2030.

That alone would put the U.S. in territory we’ve never seen outside of World War II. But here’s the catch: CBO’s projections are essentially the best-case scenario. When No Labels ran the numbers of the last 25 years’ worth of CBO projections, we found they underestimated the deficit 92% of the time and underestimated the debt 86% of the time.

CBO’s Debt and Deficit Projections

CBO’s newest outlook expects a deficit – the difference between how much money the government spends each year and how much it brings in through taxes – of $1.9 trillion this year. That’s a bigger hole than we ever had before Covid. CBO expects annual deficits to reach $3.1 trillion by 2036, which would tie the record set during the pandemic.

As a result, the national debt held by the public is projected to soar. CBO says it’ll hit $32 trillion this year and balloon to $56 trillion over the next decade.

Beyond the headline values, economists like to consider the size of the national debt in relation to the “gross domestic product” (GDP), a broad measure of the size and health of the economy. Think about it like this: if you have $30,000 in credit card debt and you’re a millionaire, it’s no big deal. But if you’re $30,000 in debt and unemployed, you have a problem.

CBO says the public debt-to-GDP ratio will be over 100% by the end of this year. That is, the government will owe more in debt ($32 trillion) than the entire economy produces in a year ($31.9 trillion). That hasn’t happened since World War II. Even in the height of the Covid pandemic and recession, the public debt-to-GDP ratio only reached 98%.

The highest the public debt-to-GDP ratio ever got was 106%, in 1946 shortly after the war ended. CBO says we’ll break that record in 2030, and that by 2036 the national debt will be 120% the size of the GDP.

CBO Forecasts are Optimistic by Design

Even CBO’s bleak numbers assume things won’t get worse.

By law, CBO has to build its forecast using what’s called a “current law baseline.” Their forecasts show what would happen if all the laws stayed the same as they are now. That means they assume Democrats won’t create new big-ticket spending programs and Republicans won’t cut taxes in the future. They also assume there won’t be any new wars, recessions, and/or global pandemics.

In other words, CBO’s latest projections are what would happen if Washington left everything alone. History shows that never happens.

Congress routinely extends tax cuts, increases spending, responds to emergencies, and rescues programs before they run out of money. Each decision may be reasonable in the moment, but together they push deficits higher than the official forecasts.

CBO’s Accuracy This Century

No Labels compared CBO projections from 2000 through 2025 to what actually happened. The pattern was unmistakable.

CBO makes forecasts for up to 10 years in the future. In the short term, they’re pretty accurate. But the further out they go, the less reliable the numbers are.

This chart shows how far off CBO’s debt forecasts were, on average, at each point in the 10-year projection this century – the gap between what they said the debt-to-GDP ratio would be and what it actually ended up being.

In the first five years, CBO’s debt forecasts are off by about 8 percentage points of GDP on average. Beyond five years, the gap jumps to roughly 30 percentage points.

It’s a similar story for deficit projections:

In the first five years, they’re off by roughly 3 percentage points of GDP on average. After that, the miss grows to just over 5 percentage points.

These errors are almost always the wrong direction: CBO underestimates the deficit 92% of the time, and they underestimate the debt 86% of the time. And for forecasts over five years, CBO underestimated the debt and deficit every single time.

The worst offenses were made in the early 2000s back when the government was running surpluses – collecting more in taxes than it spent – and before the Great Recession happened.

In 2002, for example, the CBO projected that in 2012 the federal government would run a surplus equivalent to nearly 4% of GDP en route to paying the national debt down to about 7% of GDP.

In reality, Washington ran a 6.7% deficit in 2012 as the debt reached 70% of GDP.

 

The Latest Forecast, In Context

If CBO’s track record holds, the national debt will reach historic levels just two years from now, not in 2030 as their report shows. And by 2036, it will be a staggering 161% of GDP instead of the current 120% they project.

This chart puts it into perspective. The light green bar shows CBO’s projections for the national debt over the next decade; the dark green bar shows what the debt would actually be if CBO’s historical forecast errors repeat themselves.

And here’s how that same adjustment changes CBO’s latest deficit projections.

Why It Matters

Running large deficits and carrying a large national debt may not trigger a crisis overnight, but the long-term consequences are real.

The federal government has to pay interest on the debt. The higher the debt goes, the more interest Washington has to pay. Already, interest payments are set to reach $1 trillion this year. Interest is the second-biggest item in the federal budget, behind only Social Security.

That money could be used to pay for national defense or health care, or it could be invested into things like education and transportation that will grow our economy, or it could even be given right back to Americans through tax cuts. Instead, it’s tied up in interest that simply pays for past spending.

High debt also limits flexibility. In recessions, wars, or emergencies, the federal government historically borrows to respond. The more it is already borrowing just to operate, the harder it becomes to respond to the next crisis.

There’s also the feedback loop: larger debt leads investors to demand higher interest rates, which means more interest spending by the government, which further increases the deficit, which leads to more borrowing, and the cycle continues.

That cycle could eventually force a reckoning. In the coming weeks, No Labels will release a short booklet exploring what a real debt crisis would look like for everyday Americans and why the consequences would reach far beyond Washington.