Last week President Obama began a series of speeches around the country making the case for economic policies that will benefit the middle class. The tour is intended to set the stage for the fiscal fights expected this fall over a potential government shutdown and raising the statutory debt limit. This important discussion must include the fact that the national debt is a key issue affecting the middle class.
While deficits are coming down in the short term, the debt remains at levels not seen since the end of World War II. Our partner organization, the Committee for a Responsible Federal Budget, projects the debt will rise from 73% of the economy today to nearly 75% in 2023 and continue to rise thereafter.
Economists at the Congressional Budget Office (CBO), the International Monetary Fund (IMF) and elsewhere have associated higher debt levels with slower economic growth. Higher debt can cause uncertainty, thus reducing investment, which can hold back the growth of jobs and wages.
As we pointed out in a blog, there are five major reasons the debt matters to all Americans. These points are particularly relevant for middle-class families.
- High debt levels = fewer jobs and lower wages.
- Debt means more expensive consumer credit: home, auto, student loans, as well as credit cards.
- Delaying action on the national debt means it will be much more difficult to protect Medicare and Social Security from abrupt, severe, and widespread cuts in the future on all beneficiaries.
- If we do not address the debt now, federal investments in education, infrastructure, and research will decline.
- Taking steps to address our deficit now would mean a more robust economy and significant job growth over the next 10 years.
Growing federal debt can drive up interest rates throughout the American economy, meaning that loans for a home, a new car or truck, to pay down credit card cards or for education costs will all be more expensive. Higher monthly payments on these loans will strain middle-class families’ budgets.
If action is not taken, spending on interest on the debt is projected to rise to over $840 billion in 2023 – nearly four times the $223 billion spent on interest in 2012. Rising spending on interest to service the national debt could force cuts to investments in education, infrastructure and research. These types of public investments are critical for maintaining and growing the middle class.
On the other hand, a CBO analysis indicates that $2 trillion in deficit reduction over ten years could grow our economy by nearly an additional 1 percent by 2023. A healthy, growing economy means a more prosperous middle class.
The debt cannot be ignored as we discuss the country’s economic and fiscal future. As we said in a statement after the President’s first speech:
While the Campaign to Fix the Debt echoes President Obama’s desire to build a sustainable economy for all Americans, this cannot be accomplished without dealing with the nation’s unsustainable debt path, which is a critical part of helping the recovery, creating jobs, and fueling long-term economic growth.
Any discussion of the economy and boosting the middle class should include addressing the national debt. Find out more with our fact sheet.
National Debt and You