What will the debt limit mean for American households and businesses?
We ask that questions in this new series on the debt-to-GDP ratio, which was released by the Congressional Budget Office (CBO) on Thursday.
But before we get to the answers, let’s take a look at the data.
What are the key factors?
The chart below shows how the debt level is affected by the debt cap in each year since the government was created.
The red line shows the current debt limit, which the CBO expects will be raised to $16.9 trillion.
The black line shows what the debt would be if Congress raised the debt to $17.9tr.
If the debt was raised to the $17 trillion level, it would raise the debt by $8.4tr over the next decade.
If the debt were raised to a $17, $19 or $20 trillion level by 2023, the debt in 2023 would be $21.5tr.
The difference between the red and black lines shows the cumulative impact of the debt raising.
If Congress did not raise the $18 trillion debt ceiling, it’s expected to raise it again by 2027.
The CBO predicts that this will be the case until 2025.
But what happens if the debt is raised to above the $19 trillion level?
The CBO also estimates that, if the U.S. were to default on its debt obligations, the government would face $5.5 trillion in total debt and a $10.9tn deficit over the first year after the default.
By 2027, the total debt would reach $24.6 trillion and the deficit would reach more than $1.4 trillion.
The CBO predicts the debt could hit $32.9, $37.3, $38.5, $40.8 or $42.3 trillion by 2033.
The total debt could reach $47.2 trillion by 2025.
The debt would still be high enough to cause a recession in 2029, but it would be a far cry from what it was before the debt crisis of the late 1980s.
In 2028, if Congress does not raise its debt limit to the level of the $16 trillion debt, the United States will face a $19.2tr budget deficit.
By then, the federal debt would have surpassed $40tr.
But the debt ratio would have declined to 4.5%, a level that would not be possible without raising the debt.
By 2031, if there is no increase in the debt, total debt, as a percentage of GDP, would be at about 20% of GDP.
This is far below what the U and G countries would be in 2030 if they did not have debt problems.
In addition, if we were to raise the limit again in 2021, we would see the debt rise to $29.3tr by 2028.
If Congress does raise the ceiling again, the CBO projects the debt will continue to rise until 2041.
What are the effects of a debt ceiling increase?
The debt is already rising in a number of different ways, including through interest payments, interest payments on the federal budget deficit, and debt-service payments.
Interest payments are already rising as a share of GDP because of the sequester, the tax cut and the sequesters reductions in Medicare, Medicaid and Social Security payments.
By 2020, interest rates would be rising.
In addition, interest on debt service payments would be increasing because of sequestration and the debt cliff.
In 2019, the Treasury reported that the total federal debt stood at $16,079tr, but that this had declined slightly in the last several years.
The federal debt-servicing costs were about $1,700 billion per year.
By 2021, the average debt-serve costs would be about $5,500 per person.
So, the $9,000 increase in interest payments from the sequestration cuts in Medicare and Medicaid would reduce debt service by about $2,600 per person per year in 2021.
Debt service payments are also expected to rise as a result of the government’s sequester cuts, because the government is already paying off $3 trillion in interest on its debts and $5 trillion of other debts.
The government is expected to owe $8 billion in interest in 2021 on its federal debt.
And it will have $5 billion of other debt payments coming due in 2021 and 2022, and it expects to owe about $3 billion more in interest by 2022 on its other debt.
So, what does this mean for households and business?
Debt-service costs, interest-rate payments, and interest payments to consumers are all important for business.
But it is not clear that the increases in debt service will be sufficient to fully service those costs.
The interest on the government debt has increased by more than 1,400 basis points in the past decade.
The average interest rate on government debt increased by 2.7