The national debt is like the housing bubble 15 years ago. Most people knew it was unsustainable, but few wanted to talk about it before the inevitable crash.
By the end of this year, the debt will reach 98 percent of gross domestic product. For comparison, the previous peak of U.S. debt was at 106 percent of GDP in 1946. World War II was the primary cause of that spike. By 2050, the debt is projected to balloon to 195 percent of GDP.
All of this government borrowing will crowd out private investment. That will reduce worker productivity, inhibit prosperity and stymie job creation. Overall, the CBO projects that the status quo will produce real GDP growth of 1.6 percent a year from 2020 to 2050. In contrast, over the past 50 years, GDP grew by 2.8 percent a year.
A long-term economic slowdown is actually a best-case scenario. If things go badly, it could get ugly fast. This current path “would 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 warned.
Over the past few months, the federal government’s coronavirus response — an additional $3 trillion in spending — has dramatically increased the yearly budget deficit. But long term, entitlement programs and interest costs are driving the debt. In 2019, Social Security and major health care programs, including Medicaid and Medicare, cost the equivalent of 10.8 percent of GDP. By 2050, that number will be 17 percent. Remember this the next time someone mentions government-run health care. We can’t even afford current entitlements. Net interest will go from 1.6 percent of GDP in 2020 to 6.5 percent of GDP in 2050.
By 2036, tax revenue will cover only Social Security, major health care programs and interest. That doesn’t include any military or discretionary spending.
Numbers this abstract can be overwhelming, so the Heritage Foundation put in it terms of median family income. The current situation is akin to a family earning $68,700 a year but spending $137,700 annually while already having $558,400 in debt.
That’s a crisis brought on by Washington’s spending addiction. Increasing taxes won’t do the job without fiscal restraint on both sides of the aisle.
It won’t be easy to get out of this mess, but the longer we wait, the harder it will be.