United States Running out of Fiscal Runway

Bloomberg and Fortune contributed to this report.

America is heading into the next economic shock with less breathing room than ever — and a big fiscal watchdog says that’s a problem we should stop pretending isn’t coming.

A new report from the Committee for a Responsible Federal Budget warns the country is “woefully underprepared” for the next recession or market storm. The think tank’s blunt message: we’re carrying record debt going into whatever hits next, and that could seriously limit policymakers’ options — and hurt ordinary people who’ll feel the fallout.

Debt is roughly equal to the size of the entire economy — about 100% of GDP — a level not seen since World War II. By comparison, when the dot-com bubble burst debt was near 34% of GDP; the 2008 crisis hit with about 35%; and COVID arrived with debt around 79% of GDP. Today’s reality: annual deficits near 6% of GDP, and interest payments now gobble up almost a fifth of federal revenues — roughly double the share during prior crises. The report leans on official projections that, without change, debt could climb toward ~120% of GDP by 2036, with interest eating a growing slice of every tax dollar.

High debt limits options. In past emergencies, lawmakers often improvised — and those improvisations added permanently to the debt. The Great Recession pushed debt up by roughly 35 percentage points of GDP; the pandemic response tacked on about 20 more. Lawmakers seldom fully rolled back emergency spending once the immediate danger faded, leaving a structural deficit that now acts like background noise in the budget. When a crisis arrives and the nation is already heavily leveraged, throwing more borrowed money at the problem can backfire — pushing up inflation or spooking markets and making borrowing costlier. The CRFB warns that reflexive, large-scale spending without a plan risks solving one problem while creating another.

So what does the CRFB want? A “Break Glass Plan” — a prenegotiated, ready-to-deploy toolkit Congress can flip on the minute disaster hits. The group wants a four-part blueprint:

1. A targeted, right-sized stimulus tailored to the shock — not a grab-bag of long-standing spending priorities shoehorned into an emergency bill.
2. A “Super PAYGO” rule: every dollar of immediate emergency spending would be paired with two dollars of medium-term savings — a two-for-one approach to show creditors we’re serious about debt control.
3. A default deficit-reduction mechanism that would automatically slow program growth (including on entitlements), hold discretionary spending flat, and phase in surtaxes on top earners and corporations once the recovery is under way — the report says this could shrink deficits sharply within a few years.
4. A bipartisan fiscal commission empowered to replace blunt automatic cuts with smarter, politically durable reforms to taxes, entitlements and the budget process — its recommendations would get expedited up-or-down votes.

The report also highlights concrete savings ideas that already enjoy bipartisan support — things like equalizing certain Medicare payments across settings, trimming Medicare Advantage overpayments, and fixing quirks in the state-and-local tax deduction that together the group argues could yield hundreds of billions over a decade.

The CRFB didn’t limit its worry to financial markets. Its worst-case scenarios run the gamut: asset bubbles bursting in housing, equities, AI or crypto; a major natural disaster; or geopolitical shocks that spike energy prices. Drafted before recent strikes that involved the US and Israel against Iran, the report even flagged how such events — which can choke shipping routes and send oil above $100 a barrel — can amplify fiscal risk. The group also flagged stagflation and policy mistakes (fiscal or monetary) as serious threats if inflation and yields keep acting up.

Automatic cuts and surtaxes are poisonous in Congress. That’s why the CRFB wants a commission to craft compromises — the kind of deal some advocates say worked in the past. Martha Martha Shedden, president of the National Association of Registered Social Security Analysts, said she’d welcome a bipartisan panel similar to the 1983 commission that former Speaker Tip O’Neill and President Ronald Reagan backed to secure Social Security’s future.

Long-term Treasury yields are still elevated, inflation hasn’t fully surrendered to the Fed, and Congress is debating tax and spending moves that could add trillions to the tab. Meanwhile, recessions tend to arrive roughly every seven years on average — the last ended in 2020. Given all that, the CRFB’s message is simple and urgent: don’t wait for the next shock to scramble for answers. Get the plan on the shelf, and only “break the glass” when you actually need to.