The US Budget Office Is Frequently Wrong on Purpose

US federal debt will reach a record 116% of gross domestic product by 2034, up from 93% today. That’s according to the Congressional Budget Office. As the bipartisan Washington agency tasked with being the umpire in disputes over how legislation will affect the economy, its estimates have some credibility. Or, rather, they should have some credibility.

The CBO’s economic forecasts are among the most accurate and reliable you can get. But when it comes to the federal budget, the CBO is more interested in encouraging deficit reduction than delivering accurate insight. How else to explain why over the past 50 years it has routinely overestimated the amount of interest the US government would have to pay to service its debt?

Its latest debt forecasts released earlier this month were no different, containing estimates on the likely path on interest rates that are far higher than what Wall Street and professional economists anticipate. This is important for two reasons. First, because the CBO figures suggest that from now until 2034, more than half of the government's debt accumulation will stem from interest on existing obligations. Second, the latest estimates may play a central role as the US barrels toward a partial government shutdown on March 1 if Congress is unable to agree on a spending deal.

CBO Versus the Pros

The CBO knows that its interest rate estimates are always too high. A study it published found that from 1984 to 2021, the CBO overestimated the amount of interest the government would pay 10 years into the future by 106% on average. Looked at another way, the interest the government actually ended up paying was about half what the CBO predicted. So, why does the CBO think interest payments as a percentage of GDP will reach unprecedented levels, rising from 2.4% of GDP in 2023 to 3.9% of GDP by 2034? (The current record of 3.2% was set in 1991.) The answer is that although private-sector economists want – and need - their forecasts to be accurate if they want to keep their jobs, the CBO has another agenda.

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