Economic Implications of U.S. Federal Debt Trajectory

Do forecasts of U.S. deficits and debt portend doom? In their November 2025 paper entitled "Then and Now: A Look Back and Ahead at the Federal Budget", Alan Auerbach and William Gale estimate future U.S federal deficits and debt. They consider three views of deficits and associated debt (see the chart below):

1. Unified deficit - difference between all federal spending and revenues.
2. Cyclically adjusted unified deficit - adjusts unified deficit according to the state of the economy. During recessions, spending rises as more people seek government benefits, while revenue falls as incomes decline. At the same time, discretionary policies tend to move in the same direction.
3. Primary deficit - difference between federal non-interest spending and revenues.

They discuss economic ramifications of debt and different ways to address the U.S. fiscal situation. Using deficit, debt and Gross Domestic Product (GDP) data during 1965 through 2024, plus projections from economic models, they conclude that: