The path we’re on:
- After a few years of decline, the federal budget deficit rose to $587 billion in 2016 and is expected to continue on an upward path.
- The nonpartisan Congressional Budget Office forecasts that we will again reach $1 trillion deficits by 2022.
- Today, national debt held by the public is over $14 trillion, which is 77 percent of our economy, and is set to continue to rise. Debt was 39 percent of the economy as recently as 2008.
- As a share of the economy, debt will grow to 91 percent in 2027. That is more than twice the 50-year average of 40 percent.
- Without action soon, national debt is on track to exceed 100 percent of the economy by 2033 and surpass the all-time record of 106 percent by 2035.
- By 2047, debt is projected to be at 150 percent of the economy and still on an upward path.
Drivers of the Debt:
- An aging population, rising health care costs, growing interest payments on the debt and insufficient revenue are the primary drivers of the long-term debt.
- Little has been done to address the long-term drivers of the debt through fundamental tax and entitlement reform.
- By 2029, 100 percent of the revenue we collect will go towards mandatory spending like Medicare, Medicaid, and Social Security, and interest payments.
- Interest payments on the debt represent the fastest growing part of the federal budget and will be about 12 percent of government spending by 2027 and will continue rising, crowding out critical investments.
- Our tax code’s wide array of deductions, exemptions, and loopholes – known as tax expenditures, or spending through the tax code – represented over $1.5 trillion in lost revenue for the Treasury last year alone.
- Tax expenditures would make up more than one-quarter of federal spending if included in the budget.
Consequences of rising debt:
- Rising national debt will hamper public investment needed to grow the economy because federal spending on items like infrastructure, education and research will be crowded out by increased interest payments on the debt.
- Higher federal debt translates into higher interest rates down the road and less capital available for small businesses, large companies, and families to borrow and invest.
- Families will feel the effects of rising debt through increased costs of home loans, automobile loans, credit cards, and educational expenses because of higher interest rates.
- For example, a typical family with a $300,000 mortgage can expect to pay at least $45,000 more over the course of the mortgage due to the growing debt.
- The lack of investment because of high national debt will result in lower wages.
- According to the nonpartisan Congressional Budget Office, average income will grow more slowly over the next 30 years with rising debt compared to if debt is placed on a downward path. In today’s dollars, that’s $5,000 less income per person. And over 30 years of working, it represents $55,000 in lost income.
- Higher debt means leaving the next generation saddled with it, reducing their budget flexibility and the ability of the United States to respond to crises in the future – including economic, natural, and security emergencies.
Benefits of debt reduction done right:
- Beginning to phase in now spending cuts, tax increases, or some combination of both will mean the changes will be less drastic than if we wait.
- According to the Tax Policy Center, if we wanted to fix the debt only by raising taxes on those making over $250,000, the top rate would need to be over 100 percent.
- Policymakers need to enact a plan that stabilizes debt as a share of the economy and then puts it on a clear downward path this decade.
- Smart and gradual debt reduction can reverse all of the negative economic and generational consequences of elevated and rising debt.
- A credible plan could help strengthen the recovery by improving confidence and reducing uncertainty, even if savings don’t start until after the recovery.
- The Congressional Budget Office estimates that the economy would grow nearly 6 percent more with a $4 trillion deficit reduction.
- There are many proposals and ideas for policymakers to pick and choose from, including: the Simpson-Bowles Commission, Domenici-Rivlin task force, the Super Committee discussions, the Biden negotiations, and others.
- Every recent bipartisan deficit reduction plan has included progressive reforms that ask more from those who can afford it, protect low-income programs, and offer new enhancements for the most vulnerable.