WASHINGTON (Reuters) - The U.S. budget deficit will more than double as a share of economic output by 2040 if current tax and spending laws remain unchanged, congressional forecasters said on Tuesday.
The Congressional Budget Office said, however, it now believes the nation's debt will grow more slowly than it projected last year on views that interest rates will be lower than earlier forecast.
The CBO said that based on its normal scoring methods, the 2040 deficit will reach 5.9 percent of gross domestic product, compared to 2.7 percent this year and 3.8 percent in 2025.
By contrast, the deficit reached nearly 10 percent of GDP in 2009 during the depths of the financial crisis.
"Mainly because of the aging of the population and rising healthcare costs, the extended baseline projections show revenues that fall well short of spending over the long term, producing a substantial imbalance in the federal budget," the CBO said in the report.
The CBO said U.S. debt held by the public in 2040 will reach 103 percent of GDP, up from 74 percent currently but slightly below the 106 percent it predicted last year for 2039. That's because it has lowered its long-term forecast for 10-year Treasury note yields to 2.0 percent from 2.3 percent, to conform with private market expectations.
The agency, which is now under the management of Republican-appointed director Keith Hall, also included debt and deficit forecasts that take into account the economic feedback of an increasing federal debt load, which will slow long-term growth by crowding out savings and capital investment.
Under this scenario, the deficit would reach 6.6 percent of GDP in 2040 and public debt would be 107 percent of GDP.
"The question has never been if we should reduce the long-term deficit – the question is how," said Representative Chris Van Hollen, the top Democrat on the House Budget Committee. "Democrats are committed to a balanced approach to reducing the deficit."
The report offered new prescriptions on how much Congress would have to increase revenues or cut spending to meet certain budgetary targets.
To keep the federal debt-to-GDP ratio at its current level of 74 percent, Congress would have to increase revenues by 6 percent or cut spending by 5.5 percent from levels under current laws in each of the next 15 years. In 2016, that would translate to about a $210 billion reduction in the deficit.
Republicans who control both the House of Representatives and Senate passed non-binding budget plans this year that propose to eliminate deficits within 10 years by cutting domestic spending by around $5 trillion over a decade.