What’s the Deal

with R and G?

CRFB.org
 R, G, and Debt Sustainability

Some Definitions
R = Average interest rate on government debt

G = Average growth rate of U.S. economy (GDP)

Debt Sustainability = When national debt grows

slower than gross domestic product (GDP) or
expected to stop growing before getting too high

CRFB.org
 Some Features of R and G

1. R describes the growth of current debt, while

G represents its erosion (relative to GDP)
2. When R<G, debt may be sustainable even
when non-interest spending exceeds revenue
3. When R<G, one-time borrowing has little
effect on long-term debt-to-GDP
4. For the last 15 years, R has been below G

CRFB.org
 Some Features of R and G

Primary Surplus Primary Balance Primary Deficit

Debt sustainable if Debt grows indefinitely Debt grows indefinitely
R>G P-surplus ≥ (R-G)*debt (debt spiral) (debt spiral)

Debt falls indefinitely Debt remains stable Debt grows indefinitely

R=G (sustainable) (likely sustainable) (likely unsustainable)

Debt becomes wealth: Debt/GDP trends to 0% Debt trends to:

R<G P-surplus/(G-R) (sustainable) P-Deficit/(G-R)

CRFB.org
 When R<G, Debt MAY Be Sustainable

IF: Interest rates are below the growth rate (R<G)

AND: Interest rates are stable over time
AND: Growth rate is stable over time
AND: Primary deficits stay constant % of GDP
THEN: Debt will stabilize at:
𝑃𝑟𝑖𝑚𝑎𝑟𝑦 𝐷𝑒𝑓𝑖𝑐𝑖𝑡
𝐺 −𝑅

CRFB.org
 Debt Asymptotes w/ Stable P-Deficit & R<G
Debt-to-GDP w/ 3 percent of GDP primary deficit, 4% growth rate, 3% interest rate

300%

250%

200%

150%

100%

50%

0%
2023 2050 2100 2150 2200 2250 2300 2350 2400 2450 2500

Sources: Committee for a Responsible Federal budget.

CRFB.org
 Debt Asymptotes w/ Stable P-Deficit & R<G
Debt-to-GDP w/ 2 percent of GDP primary deficit, 4% growth rate, and 3% interest rate

200%

150%

100%

50%

0%
2023 2050 2100 2150 2200 2250 2300 2350 2400 2450 2500

Sources: Committee for a Responsible Federal budget.

CRFB.org
 And One-Time Borrowing Doesn’t Matter Much
Debt-to-GDP w/ 2 percent of GDP primary deficit in most years but 10 percent in 2050 and 2051, 4% growth rate, 3% interest rate

200%

150%

100%

50%

0%
2023 2050 2100 2150 2200 2250 2300 2350 2400 2450 2500

Sources: Committee for a Responsible Federal budget.

CRFB.org
Is Our Debt Sustainable?

CRFB.org
Debt Sustainability Requires Multiple Ingredients

Sustainable debt requires several of:

❑ Manageable debt levels
❑ Modest and stable (primary) deficits
❑ Favorable demographics
❑ Limited health care cost growth
❑ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 Ingredients for Debt Sustainability

❑ Manageable debt levels

❑ Modest and stable (primary) deficits
❑ Favorable demographics
❑ Limited health care cost growth
❑ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 Debt Is Nearing Record Levels
Debt Held by the Public as a Percent of GDP
120% Previous Record 115%
Broken in 2029

Previous Record: 106%

100%

80%

60%

50-Year Historic Average: 47%

40%

20%

0%
1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 2030

CRFB.org
Sources: Committee for a Responsible Federal Budget, Congressional Budget Office
 And Is Projected to Rise Rapidly
Federal Debt Held by the Public, Percent of GDP
250%

230%

210%

190%
181%

170%

150%

132%
130%

110%

90%
2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053

CRFB.org
Source: Congressional Budget Office.
 Ingredients for Debt Sustainability

✓ Manageable debt levels

❑ Modest and stable (primary) deficits
❑ Favorable demographics
❑ Limited health care cost growth
❑ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 Deficits Just Doubled
Annual Budget Deficit, Excluding Student Debt $3.1T
Cancellation Stopped by Supreme Court (trillions)
$3.0T
$2.8T
COVID-era
Spending Surge
$2.5T

$2.0T
$2.0T

$1.5T

$1.0T
$1.0T

$0.5T

$0.0T
2017 2018 2019 2020 2021 2022 2023

Note: 2022 deficit excludes cost of student debt cancellation. CRFB.org

Source: Committee for a Responsible Federal Budget, Congressional Budget Office
 Ingredients for Debt Sustainability

✓ Manageable debt levels

✓ Modest and stable (primary) deficits
❑ Favorable demographics
❑ Limited health care cost growth
❑ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 American is Getting Older
Population 65 or Older, Millions
120
HISTORIC PROJECTED

95 or Older
100

85 to 94

80

75 to 84
60

40

65 to 74
20

0
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070

Source: Committee for a Responsible Federal Budget estimates based on Congressional Budget Office CRFB.org
and U.S. Census Bureau data. 18
 Increasing the Cost of Social Security and Medicare
Percent of Taxable Payroll
19%

HISTORIC PROJECTED
18%

17%

16%

15%

14%

13% Dedicated Revenue

12%

11%

10%
2007

2039
1987
1991
1995
1999
2003

2011
2015
2019
2023
2027
2031
2035

2043
2047
2051
2055
2059
2063
2067
2071
2075
2079
2083
2087
2091
2095
CRFB.org
Source: Social Security Administration.
 And Driving Them Toward Insolvency
Percent of Annual Spending
400%

350%

300%

250%

200%

150%
Highway Social Security (OASI)
2028 2033
100% Medicare HI 23% cut
47% cut 2031
50% 11% cut

0%
2010

2017
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
CRFB.org
Sources: Social Security Trustees, Medicare Trustees, and Congressional Budget Office.
 Ingredients for Debt Sustainability

✓ Manageable debt levels

✓ Modest and stable (primary) deficits
✓ Favorable demographics
❑ Limited health care cost growth
❑ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 10%
12%
14%
16%
18%

0%
2%
4%
6%
8%
Australia
Austria
Belgium
Brazil

Note: Data from 2013

Canada

10.3%
Canada
Chile
China
Colombia
Costa Rica
Czech Republic
Denmark
Estonia
Health Expenditures as Percent of GDP

Finland
France
11.4%
France

Germany
Greece
Public

Hungary
Iceland
India

Source: Organization for Economic Cooperation and Development

Indonesia
Ireland
Private

Israel
Italy
Japan
Japan
10.8%

Latvia
Lithuania
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
9.1%
Portugal

Russia
Slovak Republic
Health Costs are High in the U.S.

Slovenia
South Africa
South Korea
Spain
Sweden
CRFB.org

Switzerland
11.3%

Turkey
Switzerland

United Kingdom
United States
16.3%

Average
8.2%
United States
 And Federal Health Spending Keeps Growing
Percent of GDP
9%
HISTORIC PROJECTED

8%

7%

6%

5%

4%

3%
Medicare
2%

1% Medicaid, CHIP, and

ACA Subsidies
0%
1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 2033 2038 2043 2048 2053

CRFB.org
Source: Congressional Budget Office
 With Aging and Excess Cost Growth Largely Responsible
18%

16%
Excess Cost Growth
14% 3.0%

Aging of the Population

12%
2.5%

10%

8%

6% Current Spending Without Aging and

11.6% Excess Cost Growth
10.8%
4%

2%

0%
2023 2053

CRFB.org
Source: Congressional Budget Office
 Ingredients for Debt Sustainability

✓ Manageable debt levels

✓ Modest and stable (primary) deficits
✓ Favorable demographics
✓ Limited health care cost growth
❑ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 Revenue is Back Below Historic Averages
Total Federal Revenues, Percent of Gross Domestic Product
22%

FY 2000:
20.0%
20% FY 2022:
19.3%

18%

50-year annual average:

17.4%
16% FY 2023:
16.5%

14%

12%
1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023

Sources: Congressional Budget Office, Department of Treasury, Bureau of Economic Analysis, and Committee for a CRFB.org
Responsible Federal Budget.
 Tax Expenditures Cost $1.7 Trillion Per Year
Trillions
$2.0

$1.8 $1.7T $1.7T $1.7T

Corporate
$1.6 $1.6T $0.2T

$1.4 $1.3T

$1.2

$1.0

$0.8 Individual
$1.5T
$0.6
$0.5T
$0.4

$0.2

$0.0
Discretionary Major Payroll Social Corporate Tax
Spending Health Care Tax Security Income Tax Expenditures

Note: Chart depicts FY2023 levels CRFB.org

Sources: Congressional Budget Office, Joint Committee on Taxation
 And the Tax Gap Costs $600 Billion More
Billions
$700 $688 billion
Net Tax Gap
Late Payments and Enforcement Activities $601 billion
$600
$550 billion
$496 billion
$500
$438 billion
$394 billion
$400

$300 $625 billion

$539 billion
$481 billion
$428 billion
$200 $380 billion
$344 billion

$100

$0
2008-2010 2011-2013 2014-2016 2017-2019 2020 2021

Note: Due to updated methodologies, these figures are not directly comparable. Figures for tax years up
to and including TY 2014-2016 reflect official IRS estimates. Figures for TY 2017-2019, 2020, and 2021
reflect preliminary projections, and are subject to revision. The TY 2017-2019 projection has been updated
since it was first published in October 2022. CRFB.org
Source: Internal Revenue Service, Treasury Department.
 Ingredients for Debt Sustainability

✓ Manageable debt levels

✓ Modest and stable (primary) deficits
✓ Favorable demographics
✓ Limited health care cost growth
✓ Robust revenue collection
❑ Responsive and responsible political system
❑ Interest rates below the growth rates (R<G)

CRFB.org
 We Keep Adding Tax Cuts & Spending to the Debt
Billions Permanent Bush Tax Cut
$5,000
Extension/Fiscal Cliff Deal
(2012 ATRA)
$4,000
$4,000
Wars in Iraq
and
Afghanistan
$3,000 (many pieces 2009 stimulus
Tax Cuts & American
of legislation) bill (American CARES
Jobs Act BBA Rescue Plan
Act
2001 Bush $1,600 Recovery & $1,800* 2019 $1,845
$2,000 tax cuts $1,725
Reinvestment $1,470
$1,300 Act) FY 2022
$800 Omnibus
$1,000 PACT Act
$570
$470

$0
BBA 2013
Affordable -$25
Care Act
-$1,000 (ACA)
$0 Fiscal
Responsibility
-$2,000 2011 Budget Control Act
Act
-$1,745
-$1,340

-$3,000

* Cost of Tax Cuts & Jobs Act is estimated on a conventional basis for comparison purposes CRFB.org
Sources: Committee for a Responsible Federal Budget, Congressional Budget Office, Congressional Research Service.
 Politicians May Pass Costly Policy Extensions
Cost of Extension
Expiring Provision
(2026-2035)
Reduce individual income tax rates to 10|12|22|24|32|35|37 $3.2 trillion
Repeal ‘Pease’ deduction limit & Alternative Minimum Tax for most taxpayers $800 billion
Replace personal and dependent exemption with doubled Child Tax Credit
$40 billion
($1,000 to $2,000) and larger standard deduction
Establish 20% deduction for certain pass-through business income $720 billion
Expand Opportunity Zones $80 billion
Limit state and local tax (SALT) deduction to $10,000 per taxpayer -$960 billion
Limit or repeal other tax deductions -$280 billion
Limit deductibility of business losses against ordinary income. -$200 billion
Subtotal, TCJA Extensions $3.4 trillion
Expanded Affordable Care Act premium credits $370 billion
Total $3.8 trillion

Sources: Committee for a Responsible Federal Budget Build Your Own Tax Extensions Model, Joint Committee on CRFB.org
Taxation, and Congressional Budget Office.
 And They Are Taking Solutions Off the Table
Percentage Spending Cut or Tax Increase

Balance the Budget Stabilize the Debt (98% of GDP)

100%

80% 76% 74%

60%
47%
44%
40% 34%
31% 33%
26%
19% 21%
20% 14%
11%

0%
All Spending Exempt Soc. Exempt SS, All Taxes All Taxes All Taxes
Security & Defense, VA, & Above Above
Defense M'care $200K $400K

Note: Taxes above $200k and $400k includes all corporate and estate taxes as well as income and payroll taxes
above those thresholds. Estimates are rough. CRFB.org
Sources: Committee for a Responsible Federal Budget and Congressional Budget Office.
 Ingredients for Debt Sustainability

✓ Manageable debt levels

✓ Modest and stable (primary) deficits
✓ Favorable demographics
✓ Limited health care cost growth
✓ Robust revenue collection
✓ Responsive and responsible political system
❑ Interest rates below the growth rate (R<G)

CRFB.org
Is R<G Enough?

CRFB.org
 Ingredients for Debt Sustainability

✓ Manageable debt levels

✓ Modest and stable (primary) deficits
✓ Favorable demographics
✓ Limited health care cost growth
✓ Robust revenue collection
✓ Responsive and responsible political system
❑ Interest rates below the growth rate (R<G)

CRFB.org
Interest Rates Have Been Below the Growth Recently
14%
Historic Projected

12%
GDP Growth Rate
(3-Year Avg)
10%

8%

6%

4%

2%

0%
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 2033

CRFB.org
Source: Congressional Budget Office, Committee for a Responsible Federal Budget
 But R<G Doesn’t Guarantee Sustainability!

Keep In Mind That:

1. If primary deficits grow, debt will too
2. Debt-to-GPD can rise for decades or centuries
even with stable R, G, and primary deficits
3. Rising debt boost R and shrinks G
4. R and G can change quickly as debt rolls over,
and R>G for new debt, already!

CRFB.org
 If Primary Deficits Grow, Debt Will Too
Debt-to-GDP w/ 2 percent of GDP primary deficit growing .01 percentage points annually, 4% growth rate, 3% interest rate

600%

500%

400%

300%

200%

100%

0%
2023 2050 2100 2150 2200 2250 2300 2350 2400 2450 2500

Sources: Committee for a Responsible Federal budget.

CRFB.org
 Stabilization in Thousands of Years is of Little Comfort
Debt-to-GDP w/ 3 percent of GDP primary deficit, 4% growth rate, 3.8% interest rate

1200%

1000%

800%

600%

400%

200%

0%
2023 2050 2100 2150 2200 2250 2300 2350 2400 2450 2500

Sources: Committee for a Responsible Federal budget.

CRFB.org
 Debt Boosts R and Shrinks G
Debt scenarios w/ 2% of GDP stable primary deficit
500%

400%

300%

200%

100%

0%
2023 2033 2043 2053 2063 2073

CRFB.org
Sources: Committee for a Responsible Federal budget.
 And Now, R>G on New Debt
6.0%
5.6%

5.0% 5.0%

4.0% Likely Growth Rate: 3.8%

10-Year Note
3.0%

2.0%

1.0%

3-Month Bill
0.0%
2013
2013
2013
2014
2014
2015
2015
2015
2016
2016
2017
2017
2018
2018
2018
2019
2019
2020
2020
2020
2021
2021
2022
2022
2023
2023
2023
CRFB.org
Source: U.S. Department of Treasury
 Which Could Lead to Rapid Debt Growth
Debt-to-GDP with 2.5 percent of GDP primary deficit, 3.8% growth rate, 4.8% interest rate

500%

400%

300%

200%

100%

0%
2023 2050 2075 2100

Sources: Committee for a Responsible Federal Budget. CRFB.org

*Interest rates increase 2bp and GDP growth decreases 0.25bp for every one percentage point increase in debt-to-GDP
 Or Even Spark An Uncontrollable Debt Spiral
Debt-to-GDP with 2.5 percent of GDP primary deficit, 3.8% growth rate, 4.8% interest rate

500%

400%

300%

200%

100%

0%
2023 2050 2075 2100

Sources: Committee for a Responsible Federal Budget. CRFB.org

*Interest rates increase 2bp and GDP growth decreases 0.25bp for every one percentage point increase in debt-to-GDP
Will Rates Stay High, Rise, or Come Back Down?

Reasons for Optimism:

• Fed plans to cut rates and eventually end QT
• Aging of population means more savers
• Rising global wealth means more savings
• Rising rates may reflect rising productivity growth

Reasons for Pessimism:

• Strong inflation & employment → higher for longer
• Aging of the aged means more dissavers
• Rising global income means more spenders
• Rising sovereign debt boost rates, slows growth
CRFB.org
 Most Debt Was Issued Under Low Interest Rates –
Now It Is Rolling Over!
Share of Debt Held By the Public By Interest Rate of Original Issuance
90% 3-month yield
82% 10-year yield
80% 75%
74%
71% 69%
70%

59%
60%

50%

40%
34%
30%
30%

20%

10%

0%
Below 2% Below 3% Below 4% Below Inflation

CRFB.org
Source: Congressional Budget Office, Department of the Treasury, Committee for a Responsible Federal Budget
Is Debt Sustainability
Enough?

CRFB.org
High and Rising Debt Has Many Other Consequences
❖ High inflation due to excessive demand
❖ Slower economic and income growth due to crowd out
❖ Rising interest rates due to crowd out
❖ Rising interest payments consuming tax revenue
❖ Increased geopolitical risk due to our lenders, declining
fiscal flexibility, and weakened international standing
❖ Less fiscal space to respond to disasters or crises
❖ Loss of policy dynamism, leading to inefficient
and outdated tax and spending policies
❖ Risk of fiscal crisis, where panic over debt causes
financial market turmoil CRFB.org
 Deficits Can Lead to High Inflation
8% Calculation based on Q4/Q4

PCE Price Index 7.1%

7% Consumer Price Index (CPI)

6% 5.7%

5%

4%

3%

Fed 2% Average Inflation Target

2%

1%

0%

CRFB.org
Source: Committee for a Responsible Federal Budget, Bureau of Economic Analysis, Bureau of Labor Statistics.
 Debt Can Slow Income Growth
Real Gross National Product Per Person in 2053 (2023 Dollars)
$130,000

$125,000 +$45,200

$120,000
+$37,200
$115,000
+$31,000
$110,000

$105,000
$124,800
$100,000
$116,800
$95,000 $110,700

$90,000

$85,000

$80,000
Trend Growth Baseline Debt Faster Rising Debt

Sources: Congressional Budget Office and Committee for a Responsible Federal Budget. CRFB.org
Numbers may not sum due to rounding.
 It Can Boost Interest Rates
6.0%
5.6%

5.0% 5.0%

4.0% Likely Growth Rate: 3.8%

10-Year Note
3.0%

2.0%

1.0%

3-Month Bill
0.0%
2013
2013
2013
2014
2014
2015
2015
2015
2016
2016
2017
2017
2018
2018
2018
2019
2019
2020
2020
2020
2021
2021
2022
2022
2023
2023
2023
CRFB.org
Source: U.S. Department of Treasury
 And Explode Interest Costs
Projected Spending Under CBO’s Baseline (Billions)
$2,000
Historic Projected
$1,800

$1,600

$1,400
Hits New Record as a
Share of GDP
$1,200

$1,000
Medicare
$800
Defense
$600

$400
Net Interest
$200

$0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

CRFB.org
Sources: Congressional Budget Office, Committee for a Responsible Federal Budget
Looming Trust Fund Insolvency Could Mean Abrupt Cuts
Projected Benefit Cut for Couple Retiring in 2033 (Current Dollars, 2033)
$0

-$5,000

-$7,900
-$10,000
-$10,600

-$13,100
-$15,000

-$17,400 -$17,300
-$20,000
Single-Income Couple
Dual-Income Couple
-$23,000
-$25,000
Low-Income Medium-Income High-Income

CRFB.org
Sources: Social Security Administration and Committee for a Responsible Federal Budget.
The U.S. Needs Trillions of Dollars of Debt Reduction
Deficit Reduction Needed to Achieve Certain Fiscal Targets
Through 2028 Through 2033
(5 years) (10 years)
Debt Targets
110 percent of GDP n/a $2.0 trillion

100 percent of GDP $1.8 trillion $5.9 trillion

90 percent of GDP $5.0 trillion $9.8 trillion

80 percent of GDP $8.3 trillion $13.8 trillion

Deficit Targets*
4 percent of GDP $2.0 trillion $6.4 trillion

3 percent of GDP $3.3 trillion $8.7 trillion

On-Budget Balance $6.2 trillion $12.7 trillion

Primary Balance $3.6 trillion $8.8 trillion

Balance $7.3 trillion $15.7 trillion

CRFB.org
If Not Now, When?

CRFB.org