Since 2007, federal debt held by the public has more than doubled in relation to the size of the economy, and it will keep growing significantly if the large annual budget deficits projected under current law come to pass. The Congress faces an array of policy choices as it confronts the challenges posed by such large and growing debt.

1. Congressional Budget Office
Presentation to the Aspen Economic Strategy Group
July 29, 2019
Phillip L. Swagel
Director
Fiscal Policy Choices

2. 1
CBO
§ The Long-Term Budget Outlook
§ Interest Rates
§ Consequences of High and Rising Federal Debt
§ Fiscal Policy Choices
§ The Size of Policy Changes Needed to Meet Various Goals for Deficit
Reduction
§ Effects on Different Generations
Outline

3. 2
CBO
Federal Debt Held by the Public Since 1790

4. 3
CBO
§ What is an acceptable amount of federal debt? In considering that question,
policymakers would assess the benefits, costs, and risks of the activities
associated with varying levels of federal debt.
§ What is the proper size of the federal government, and what would be the best
way to allocate federal resources?
§ How large would policy changes need to be to reach certain targets for debt?
§ When should any changes in deficits occur, and at what pace should they take
place?
Fiscal Policy Choices

5. 4
CBO
§ Is it more valuable to reduce budget deficits now, when the economy is in its
11th year of expansion, so that policymakers will feel that they have more fiscal
space when a recession occurs—particularly given the potential constraints on
monetary policy? Or is it more valuable to increase budget deficits now, by
reducing taxes or increasing spending, in ways that could help reduce the
chances of a reduction in output in the near term or fund investments that could
support stronger growth in the future?
§ What types of policy changes would most enhance prospects for near-term and
long-term economic growth?
§ What would be the distributional implications of proposed changes—that is,
who would realize economic losses or benefits?
Fiscal Policy Choices (Continued)

6. 5
CBO
The Size of Policy Changes Needed to Make Federal Debt Meet Two
Possible Goals in 2049
42%of GDP
(Its 50-year average)
78%of GDP
(Its current level)
$630 $400
2.9%
of GDP16%
15%
= $20 billion
billion billion
= $20 billion
If lawmakers aimed for debt in 2049 to equal:
Each year, they would need to reduce deficits as a share of GDP by:
In 2020, that would amount to a reduction of:
If the changes were equal percentage increases in all types of revenues, taxes per
increase in
revenues
decrease in
spending
1.8%
of GDPor
11%
10%
increase in
revenues
decrease in
spending
or

7. 6
CBO
The Size of Policy Changes Needed to Make Federal Debt Meet Two
Possible Goals in 2049 (Continued)
+$2,100
$13,900
New Average Tax
$12,500
Current Average Tax
+$1,400
$19,400
Current Average Benefits
$16,600
New Average Benefits
-$2,800 -$1,900
$19,400
CurrentAverageBenefits
$17,600
New Average Benefits
$630 $400
= $20 billion
billion billion
Values are for households
in the middle fifth of the
income distribution.
= $20 billion
In 2020, that would amount to a reduction of:
If the changes were equal percentage increases in all types of revenues, taxes per
household in 2020 would be higher than they would be under current law by:
If the changes were equal percentage cuts in all types of noninterest spending, initial
Social Security benefits in 2020 would be lower than they would be under current law by:
Values are averages for people in the
middle fifth of the lifetime earnings
distribution who were born in the 1950s
and who would claim benefits at age 65.
For debt to
equal 42%
of GDP
For debt to
equal 78%
of GDP

8. 7
CBO
How Timing Affects the Size of Policy Changes Needed to Make
Federal Debt Meet Two Possible Goals in 2049