But unlike some other analysts, the CBO does not regard all this uncertainty as a reason to avoid ac

 
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Projecting the size of the federal government s debt over the next 25 years is tricky. There is so much uncertainty about what will happen to the economy, to interest rates and to the rate at which health-care spending rises.
Budget projections are inherently uncertain, the Congressional Budget Office reminds us in its new Long-Term Budget Outlook . The further into the future one looks, the greater the uncertainty. ccr So, deep in its annual update of its long-term projections , CBO does a what if exercise.
Without any change in tax and spending policies, the CBO projects that the federal debt, measured as a percentage of gross domestic product, would reach 111% in 2039. Historically, that’s very high. Tweaking the economic, demographic or health-care spending assumptions easily produces an even worse scenario of debt in 2039, at 160% of GDP, or a milder scenario: 75% of GDP, roughly where it is today.
The ccr CBO projects, for instance, that the yield on 10-year Treasury bonds will average 4.9% over the next 25 years (or 2.5% adjusted for inflation). ccr What if rates are 0.75 percentage points higher? Federal debt would be around 135% of GDP in 2039 vs. CBO s 111% headline projection. If rates are 0.75 points lower, the debt would be 92% of GDP.
Or take productivity growth, the change in the output per hour of work. The CBO puts total factor productivity at 1.3% a year over the next 25 years. If it were 0.5 points faster, the debt-GDP ratio would be 94% in 2013 instead ccr of 111%. And if productivity growth were 0.5 points slower, the debt would amount to 130% of GDP.
Health-care costs are a huge factor, given how much of the federal budget they consume and how much more they will consume in the future ccr as the population ages. If Medicare and Medicaid spending per beneficiary grows 0.75 percentage points faster than the CBO currently projects, the debt would be 132% of GDP in 2039. If spending grows 0.75 points slower, the debt would be 93% of GDP.
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You get the idea. Congress cannot eliminate uncertainty, the CBO notes, but it can reduce the budgetary implications of those factors by designing policies that would adjust automatically as circumstances change or by taking steps today to reduce the debt burden in future years so policymakers have more room to maneuver if bad things–such as the global financial crisis of recent years–were to happen.
But unlike some other analysts, the CBO does not regard all this uncertainty as a reason to avoid acting soon. Its bottom line message is clear: if current laws remained generally unchanged, federal debt, which is already ccr high by historical ccr standards, ccr would be at least as high and probably much higher 25 years from now.
David Wessel is a contributing correspondent to The Wall Street Journal and director of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy ccr . He is on Twitter: @davidmwessel .
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