How Big Is The Long-Term Debt Problem?

Articles about the deficits and the national debt generally talk about unsustainable long-term deficits that will drive the national debt up to a level where scary things happen. Sensible commentators usually acknowledge that our current deficits are a sideshow and the real problems happen in the 2020s and 2030s due to modestly increasing Social Security outlays and rapidly increasing health care spending. I admit that this has generally been my line as well; for example, in a previous post I said that the ten-year deficit problem is entirely a product of extending the Bush tax cuts, but that even if we let them expire things will get worse over the next two decades.

But looking at the numbers, it’s not clear that the long-term picture is really that bad. Here I’ll lay out the numbers, and then, as they say on Fox News, you can decide. The summary is the chart above; the details are below.

The most common source for long-term national debt scare stories is the CBO’s 2011 Long-Term Budget Outlook (LTBO), published in June. That report has two scenarios. In the extended-baseline scenario, which is pretty close to current law, the national debt reaches 76% of GDP in 2021 and 84% in 2035 (Table 1-2, p. 8)—bad, but not that bad. In the alternative fiscal scenario, which is intended to be more realistic (and which everyone cites for dramatic effect), the debt reaches 101% in 2021 and 187% in 2035—the latter being a level that virtually everyone would consider too high.

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