It would take about $8 trillion of ten-year savings to stabilize debt as a share of the economy and about $15 trillion to balance the budget under the Congressional Budget Office's (CBO) February 2024 baseline.
Under current law, CBO projects that federal debt held by the public will rise from roughly 97 percent of Gross Domestic Product (GDP) today to a record 106.3 percent by the end of Fiscal Year (FY) 2028 and grow further to 116 percent of GDP by the end of FY 2034. With this in mind, policymakers should set a fiscal goal to stabilize or reduce the debt and prevent substantial risks and threats to the budget and economy.
While there isn't one ideal fiscal goal, there are several that represent a significant improvement to the current fiscal outlook. For example, policymakers could aim to stabilize debt or reduce debt to a target level of GDP over five or ten years. Stabilizing debt at its current level of roughly 97 percent of GDP would require $3.6 trillion of deficit reduction (including interest) over five years or $7.9 trillion of savings over ten years. Reducing debt to 80 percent of GDP, which would be in line with the pre-pandemic level, would require $9.4 trillion of five-year savings or $15.0 trillion of ten-year savings.
Savings Needed to Meet Various Fiscal Goals
| Fiscal Goal | Five-Year Savings | Ten-Year Savings |
|---|---|---|
| Debt Targets | ||
| Stabilize debt at 110 percentof GDP | n/a | $2.5 trillion |
| Stabilize debt at 100 percentof GDP | $2.5 trillion | $6.7trillion |
| Stabilize debt at 97 percentof GDP (current level) | $3.6 trillion | $7.9trillion |
| Reduce debt to 90 percentof GDP | $6.0 trillion | $10.8 trillion |
| Reduce debt to 80 percentof GDP | $9.4 trillion | $15.0 trillion |
| DeficitTargets* | ||
| Reduce deficit to 4 percent of GDP | $1.5 trillion | $5.5trillion |
| Reduce deficit to 3 percent of GDP | $3.0 trillion | $8.0 trillion |
| Primary Balance^ | $3.0 trillion | $6.5 trillion |
| On-Budget Balance^ | $6.5 trillion | $12.0 trillion |
| Full Budget Balance^ | $7.5 trillion | $15.0 trillion |
Sources: Congressional Budget Office and Committee for a Responsible Federal Budget. Figures include interest. ^Balance figures are adjusted to exclude the effects of timing shifts. *Assumes modified savings path of the CRFB Fiscal Blueprint for Reducing Debt and Inflation.
Alternatively, lawmakers could aim to balance the budget or target a particular annual budget deficit by a certain year. Under its baseline, CBO projects the deficit will total 5.0 percent of GDP by 2029 and 6.2 percent of GDP by 2034. Reducing deficits to 4 percent of GDP would require about $1.5 trillion of savings over five years or $5.5 trillion of savings over ten years, while reducing deficits to 3 percent of GDP would require $3.0 trillion over five years or $8.0 trillion over a decade.
Achieving primary balance, which means revenue equals spending excluding interest, would require about $3.0 trillion of five-year savings or $6.5 trillion of ten-year savings. On-budget balance, which excludes spending on Social Security and the U.S. Postal Service, could be achieved with about $6.5 trillion of deficit reduction over five years or $12.0 trillion over ten years. Balancing the budget in full would require about $7.5 trillion of five-year savings or $15.0 trillion of ten-year deficit reduction.
Importantly, indicated savings for achieving deficit targets are estimates, as the actual amount of savings would depend on the precise path of revenue and spending. For example, total savings would be lower for policies that ramped up gradually as compared to policies that were implemented immediately.
With the national debt projected to reach a new record in just four years, policymakers should work together on a deficit reduction plan that sets a reasonable fiscal goal and outlines spending reductions and revenue increases to achieve it.
