(Adds details from report, health care cost projections)
By David Lawder
WASHINGTON, July 15 U.S. public debt remains on
an unsustainable path and will reach 106 percent of economic
output in 25 years versus about 74 percent currently, the
Congressional Budget Office said on Tuesday, marking a slight
increase from projections made last September.
The non-partisan budget referee agency attributed the
changes in its long-term budget outlook based on current tax and
spending laws to a slight downward revision in its economic
growth projections, partly offset by assumptions of reduced
interest rates and health care costs.
The revisions represent essentially no shift in the CBO's
view that despite some near-term relief, the federal deficits
are unsustainable and could lead to another financial crisis in
the long run. It attributes much of the increase in deficits and
debt through 2039 to the costs of caring for an aging
population, especially the so-called Baby Boom generation.
By 2039, spending on healthcare programs would rise sharply,
to 14 percent of gross domestic product, up from a seven percent
average over the past 40 years, CBO said. As the federal debt
load increases, net interest payments would balloon to 4.7
percent of GDP in 2039 from about 1.3 percent currently.
That will crowd out spending on defense and discretionary
programs, reducing them to 7 percent of GDP by 2039 - the
smallest share of the economy since the late 1930s.
The slight increase of public debt to 106 percent of GDP in
2039 from the 102 percent level projected last year reflects
mainly a downward revision in long-term economic growth that the
CBO initially made in February that assumes lower participation
in the labor force.
"Economic growth will be slower in the future than it has
been in the past, CBO projects, largely because of a slowdown in
the growth of the laborforce resulting from the retirement of
the Baby Boom generation, declining birth rates and the
leveling-off of increases in women's participation in the labor
market," CBO said.
But the CBO said these effects would be slightly offset by
an assumption that interest rates will not rise as quickly as
previously thought, with the 10-year Treasury note yield at 2.5
pct in the long run versus 3.0 percent.
The CBO also continued to revise downward its long-term
growth rate projections for health care costs in line with
recent trends. It now estimates that Medicare, Medicaid, the
Children's Health Insurance Program and subsidies under the
Affordable Care Act will equal 8.0 percent GDP in 2039, versus
8.1 percent projected last year.
Although the agency has had difficulty pinning down the root
causes of the slower growth in health care costs - CBO officials
have cited efficiency improvements by health care providers as
one factor - it has revised its 10-year cost projections
downward by $1.2 trillion since 2010.
(Reporting by David Lawder; Editing by Susan Heavey, Doina