The U.S. faces a massive budgetary debacle and faces a fiscal cliff that could drag on the economy but reduce federal debt in the long-run.
But the Congressional Budget Office (CBO) is out with a new report that looks at an alternative fiscal scenario. In this scenario, the CBO projects what U.S. debt will look like if the U.S. continues the "tax and spending policies that the nation has become accustomed to".
The CBO projects that federal debt held by the public will jump to 90 percent of GDP in 2022, the highest level since World War II, and that over the longer term it would more than double relative to GDP between 2022 and 2037.
What's more the aging baby-boomers will largely drive this debt burden.
"The aging of the baby-boom generation portends a significant and sustained increase in coming years in the share of the population that will receive benefits from Social Security and Medicare and long-term care services financed through Medicaid. Moreover, per capita spend- ing on health care is likely to continue to grow faster than per capita spending on other goods and services for many years.
..Without significant changes in the laws governing Social Security, Medicare, and Medicaid, those factors will boost federal outlays as a percentage of GDP well above the average of the past several decades—a conclusion that applies under any plausible assumptions about future trends in demographics, economic conditions, and health care costs."
This chart shows that major government healthcare programs are set to reach 11.5 percent of GDP in 2020 from an average of 7.1 percent over the past 40 years. Meanwhile, spending on other programs like defense education and other non-interest spending will be 8.7 percent of GDP in 2020, from an average of 11.6 percent over the past 40 years.:
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