- There is no end in sight for rising debt.
- Within 10 years, we will spend more to pay for the debt than we’ll spend on defense.
- The nation has so far sustained a historically high debt with few repercussions.
- The reality of increasing debt contradicts the political rhetoric of who is responsible.
The national debt is a useful, though somewhat imprecise, measure of the federal government’s fiscal responsibility. It continues its steady upward march even though it has been a notable cause of concern for decades. Despite repeated warnings that the debt is too high and that the upward trend is unsustainable, there is little agreement among economists and policymakers on how high the debt can go before it reaches a tipping point and becomes a critical drag on the economy. Some argue that US debt has already crossed that threshold while one school of thought has emerged to claim that there may be no threshold.
In place of a threshold, several organizations have sought to identify a “prudent” target – a level of debt that lawmakers can strive to achieve and then sustain over time that will minimize the risks to the nation’s fiscal health and economic leadership. Many economists and policymakers agree that such a target, and such prudence, is warranted. The target most commonly referenced is a 60% debt-to-GDP ratio.
Despite the uncertainties surrounding the debt, there are a few things of which we can be sure:
- The rising debt reflects an imbalance between tax and spending policies. The dollar value of the debt increases whenever annual spending by the federal government exceeds its revenue. The debt has increased in all but four years since 1980.
- As debt rises, so does the interest that taxpayers pay on the debt. In 2018, the amount of interest paid was $325 billion, or just slightly more than half the amount spent on defense ($623 billion). The Congressional Budget Office projects that interest payments will exceed defense spending within the next 10 years.
- The higher the debt relative to the nation’s gross domestic product (GDP), the greater the risks – to economic growth and stability and to our ability to address the next economic crisis when it occurs. While the debt may not be the most urgent problem facing the nation, it has the potential to undermine our ability to respond to those issues that demand action.
- Without more conclusive evidence clearly supporting a target threshold, the debt will remain a politically-charged issue that will be used conveniently to advance one agenda or another. We can be certain that whatever budget priorities are pursued, they will be vigorously opposed by the political opposition.
Until questions about the debt threshold are resolved with greater certainty, discussions around debt reduction should focus on the levels of uncertainty and risk that we and our elected representatives are willing to accept in order to identify a suitable target threshold. Once defined, the target will inform the choices we need to make in terms of tax and spending policies.