By Dan Murphy
From the Peterson Foundation
On Oct. 31, the gross federal debt of the United States surpassed $23,000,000,000,000, or $23 trillion if you don’t want to add up the zeros. America’s high and rising debt matters because it threatens our economic future. The interest that we pay on the federal debt is now the fastest growing part of the budget, and will total nearly $6 trillion over the next decade. In fact, we spend $1 billion every day, just on interest.
As we pass this unfortunate debt milestone, it’s important to understand our nation’s fiscal outlook and work together to implement sustainable fiscal solutions that promote stability in the years to come.
Following are the top 10 reasons the national debt matters.
The return of trillion-dollar deficits: The budget deficit was $984 billion in 2019, according to the Department of the Treasury. The Congressional Budget Office projects that deficits will rise to $1.4 trillion by 2029, resulting in a cumulative deficit of $12.2 trillion over the 10-year period from 2020 to 2029.
Interest costs are growing rapidly: Interest costs were $376 billion in 2019 and are projected to rise to $807 billion by 2029. Over the next decade, interest will total nearly $6 trillion. We spend nearly as much or more on net interest costs than we do in other essential areas such as Medicaid or income security programs.
Key investments in our future are at a risk: Higher interest costs could crowd out important public investments that can fuel economic growth – priority areas like education, research and development, and infrastructure. A nation saddled with debt will have less to invest in its own future.
Rising debt means lower incomes and fewer economic opportunities for Americans: Based on Congressional Budget Office projections, a reduction of debt to 42 percent of gross domestic product could increase income, on average, by $5,500 in 30 years. Stagnating wages and growing disparities in income and wealth are very concerning trends. The federal government should not allow budget imbalances to harm American citizens.
Less flexibility to respond to crises: On our current path, we are at greater risk of a fiscal crisis, and high amounts of debt leave policymakers with much less flexibility to deal with unexpected events. If we face another major recession like that of 2007-09, it will be more difficult to work our way out.
Protecting the essential safety net: Our unsustainable fiscal path threatens the safety net and the most vulnerable in our society. If our government does not have sufficient resources, these essential programs – and those who need them most – could be put in jeopardy.
A solid fiscal foundation leads to economic growth: A solid fiscal outlook provides a foundation for a growing, thriving economy. Putting our nation on a sustainable fiscal path creates a positive environment for growth, opportunity and prosperity. With a strong fiscal foundation, the nation will have increased access to capital, more resources for private and public investments, improved consumer and business confidence, and a stronger safety net.
The national debt is a bipartisan priority for Americans: Nearly three-quarters (73 percent) of voters agree that managing the national debt should be a top-three priority for the president and Congress, including 67 percent of Democrats, 75 percent of Independents, and 78 percent of Republicans.
Many solutions exist: The good news is that there are plenty of solutions to choose from. The Peterson Foundation’s Solutions Initiative brought together policy organizations from across the political spectrum to develop long-term fiscal plans. Each of those organizations developed specific proposals that successfully stabilized debt as a share of the economy over the long term.
The sooner we act, the easier the path: It makes sense to get started soon. According to the Congressional Budget Office, we would need annual spending cuts or revenue increases (or both) totaling 1.8 percent of DGP in order to stabilize our debt. If we wait five years, that amount grows by 22 percent. If we wait 10 years, it grows by 50 percent. Like any debt problem, the sooner you start to address it, the easier it is to solve.
“Reaching $23 trillion in debt on Halloween is a scary milestone for our economy and the next generation, but Washington shows no fear,” said Michael Peterson, CEO of the Peter G. Peterson Foundation. “Just 10 months ago, we crossed $22 trillion in national debt. Now, with no end in sight and no plan for the future, we will likely hit $24 trillion by the presidential election. Piling on debt like this is especially unwise and unnecessary in a strong economy.
“Debt matters because it’s the one issue that impacts all others. Rising debt threatens our economic health and hinders our ability to make important investments in our future. If we want to tackle big issues like climate change, student debt or national security, then we shouldn’t saddle ourselves with growing interest costs. This year, we’ll spend more than $1 billion per day on interest. That’s more than we spend on our kids. And, even worse, if we don’t change our policies, interest will double every 10 years.
“Lawmakers should work to manage our fiscal outlook now, when the economy is performing well and while we have time to manage the debt gradually and responsibly,” continued Peterson. “The good news is that this is one serious challenge that’s entirely within our control, with many viable solutions on the table.”
