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  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
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Upside of Inequality Oxford Unintended Consequences

AI Summary. The authors project US deficits reaching about 14% of GDP by 2053 and 25% by 2073, a gloomier path than earlier estimates largely because of a changed assumption about how deficits affect private saving. They estimate a sustainable US debt limit of 155%–210% of GDP.

Mark Warshawsky and Giorgi Bokhua American Enterprise Institute
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Mark Warshawsky and Giorgi Bokhua @AEIecon project the deficit will be 6.9% of GDP in 2033, up from 6.1% in their 2022 baseline model. Debt is forecasted to reach 256% of GDP in 2052, “likely resulting in a crisis even before 2053.”

How high will US deficits and debt rise relative to sustainable limits?

Core argument: Warshawsky, Mantus, and Pang project US federal deficits reaching roughly 14% of GDP by 2053 and 25% by 2073, with the 2023 projections gloomier for later years largely due to a changed assumption about how increased deficits affect the private savings rate.

The fiscal outlook remained highly unsustainable as of 2023, with deficits projected to reach approximately 14% of GDP by 2053 and 25% by 2073. The 2023 projections present gloomier forecasts, particularly for the later years, largely due to a changed assumption about how increased deficits affect the private savings rate. The trajectory of debt reaches unsustainable levels, likely resulting in a crisis even before 2053. We published a working paper in 2024, where we estimated sustainable debt limits for 27 OECD countries, estimating a range between 155% and 210% of GDP for the United States. Notably, the International Monetary Fund model, which we adjusted in our paper, aligns closely with our estimates Even after implementing reforms described in Table 1 and cutting all government spending and increasing income taxes, the government debt-to-GDP ratio (excluding Social Security trust fund holdings) would still rise to 203% by 2073, within the unsustainable range.

Takeaways by Macro Roundup® AI

  1. Warshawsky, Mantus, and Pang project US federal deficits reaching roughly 14% of GDP by 2053 and 25% by 2073, with the 2023 projections gloomier for later years largely due to a changed assumption about how increased deficits affect the private savings rate.
  2. The authors estimate sustainable debt limits of 155% to 210% of GDP for the United States in a 2024 working paper covering 27 OECD countries, with their adjusted International Monetary Fund model aligning closely with those estimates.
  3. Even after the reforms described in Table 1, cutting all government spending, and increasing income taxes, the authors project government debt excluding Social Security trust fund holdings would still rise to 203% of GDP by 2073, within the unsustainable range.

Related Articles:

  • Current Estimates of Sustainable Government Debt Limits for the US and 26 Other OECD Countries — The authors estimate sustainable sovereign debt limits for 27 advanced economies at 136%–234% of GDP on a gross basis and 181%–268% net of central bank holdings, finding evidence of "fiscal fatigue" once gross debt exceeds roughly 140%–145% of GDP. One estimate puts the US sustainable gross debt limit at 154% of GDP, about 30 percentage points above its current level.
  • The Budget and Economic Outlook: 2025 to 2035 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (6.2% of GDP) to $2.7tn by 2035, well above the 3.8% of GDP average of the past 50 years. Outlays are projected to rise to 24.4% of GDP, driven by growth in Social Security and Medicare spending and rising net interest costs, while revenues reach 18.3%.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.
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