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Wednesday, February 22, 2017

The Congressional Budget Office Can’t Count

The tax situation isn't going to be pretty either.

The Congressional Budget Office just released their national debt prediction for the upcoming decade, and it’s not good. Assuming the government does not add any new costs, the CBO is expecting another $10 trillion to be added to the current debt, raising the total to $30 trillion.

The real debt in 2027 will likely not be $30, but $75 trillion.But as bad as that is, the reality will likely be even worse. The CBO has historically underestimated future debt by a huge margin. Judging by their past optimistic errors, the real debt in 2027 will likely not be $30 trillion, but $75 trillion.

The next decade’s tax situation will be similar. The CBO is predicting that the government will collect $5.1 trillion in taxes in 2027, but, again, their tax predictions have been consistently wrong. The real number will most likely be closer to $4.1 trillion, which is a good thing for taxpayers but bad for the deeply indebted government.

And it keeps going. Assuming interest rates don’t change between this moment and 2027, the government will owe about $2 trillion in interest alone. However, interest rates are already starting to go up, and the CBO thinks they’ll be much higher in 2027. Even if rates don’t rise above the historical average of 6 percent (versus our current rate of 2.5 percent), the annual interest rate will consume 75 cents of every tax dollar.

A version of this story first appeared on US News.

  • Dr. Antony Davies is an Associate professor of Economics at Duquesne University, and co-host of the podcast, Words & Numbers.

  • James R. Harrigan is a Senior Editor at the American Institute for Economic Research. He is also co-host of the Words & Numbers podcast.