What happens to the deficit and national debt if interest rates stay high?

The Congressional Budget Office did a little time travel this week, to the year 2056.

It released a report that looks at what happens to the debt, deficit, and overall economy throughout the next 30 years if interest rates rise just one percentage point above its expectations, putting them at a bit more than 5%.

Carolyn Bourdeaux, executive director of the deficit watchdog group Concord Coalition, said that the federal government’s interest payments would have risen along with the higher interest rate.

“It doesn’t have to rise by much to really balloon the interest payments that we are making on this debt,” Bourdeaux said.

Bourdeaux said that just in the first 10 years of that timeline, the U.S. would have paid about $1.5 trillion more in interest, adding to the national debt and dragging down economic growth.

Chris Towner, policy director at the Committee for a Responsible Federal Budget, said that’s because the higher rate the federal government was paying would make it harder for private companies to compete with it for loans to expand.

“Because the government is going to always be able to pay an interest rate that is more attractive than private investment,” Towner said.

And a sluggish economy produces less tax revenue for the federal government.

Abhi Gupta, associate director of macroeconomic analysis at The Budget Lab, said all this adds up to a higher budget deficit.

“Both because the government is paying higher interest rates on its existing debt and because more government borrowing shrinks the economy and increases the deficit sort of indirectly,” Gupta said.

He said the government could fight its way out of this quagmire.

“All we need is for Congress to undertake moderate sized, consistent deficit reduction,” he said, “and that will be enough to stabilize debt to GDP going forward.”

That is the ratio of government debt to total economic output. If nothing changes, the CBO said that with this higher-than-expected interest rate, debt held by the public would grow to 222% of GDP in fiscal year 2056.