America’s national debt is the elephant in the living room that politicians can’t afford to ignore in the next decade or so.
A Congressional Budget Office (CBO) report released last month had some worrisome 30-year budget projections for Americans to chew on. According to CBO projections, the national debt will increase to 195 percent of gross domestic product (GDP). This marks a 45 percentage point increase than what the CBO was estimating in 2019. Obviously, these projections never could have predicted the Wuhan virus outbreak and the vast spending used to combat it. Such a response has brought the national debt to nearly 100 percent of GDP.
According to Eric Boehm of Reason around 2023, the national debt is projected to reach 17 percent of GDP. The national debt is expected to hit 107 percent of GDP—matching the record high set during World War II—by 2023.
Rising debt levels will “increase the risk of a fiscal crisis—that is, a situation in which investors lose confidence in the U.S. government’s ability to service and repay its debt, causing interest rates to increase abruptly, inflation to spiral upward, or other disruptions,” the CBO observed. “It would increase the likelihood of less abrupt, but still significant, negative effects, such as expectations of higher rates of inflation.”
A national debt that is potentially two times bigger than the economy could be a major impediment to economic growth in the long-term. According to CBO projections, average annual economic growth is expected to be at 1.6 percent over the course of the next 30 years. To put it in perspective, these projections are nearly 1 percent less than the 2.5 percent average growth rate of the last 30 years.
As a result, Americans will be faced with bleaker economic prospects and businesses will not be as dynamic. The government will be saddled with tremendous amounts of debts that future generations will be compelled to shoulder.
Apart from the Wuhan virus related spending, America will be facing considerable budgetary problems regarding entitlement programs in the next few decades. These programs are expected to take up larger portions of the federal budget. Social Security and Medicare are expected to grow faster than federal revenue in the long-term. On top of that, the interest payments on the debt itself will be a big issue as America’s debt burden increases, according to the CBO report.
“This current path will lead to insolvent trust funds and unsustainable levels of debt, prompting slower income growth, growing interest payments, and increasing the risk of fiscal crisis,” declared Maya MacGuineas, president of the Committee for a Responsible Federal Budget, in a statement.
Boehm explained that for the U.S. to reduce its national debt to 100 percent of GDP by 2050, it will have to make substantial cuts:
In order to merely bring the national debt down to 100 percent of GDP by 2050, the CBO estimates that Congress would have to implement policy changes—spending cuts, tax increases, or both—equal to about $730 billion (or 2.9 percent of GDP) by 2025.
That would be the same as cutting roughly half of all discretionary spending in last year’s federal budget. And the longer Congress waits to take action, the larger that number will become.
“Delaying policy changes would reduce the well-being of younger generations (compared with their well-being if policy changes occurred earlier),” the CBO warned. “Moreover, the farther in the future that a policy change occurred, the more the well being of older generations would be improved and that of younger generations would be worsened.”
After the Wuhan virus pandemic subsides, politicians need to get serious about fiscal responsibility. There comes a point when kicking the can down the road will prove costly for Americans. It’s time that our elected officials start planning for America’s future post-Wuhan virus. We can no longer have politicians behaving in such a short-signed manner.