The Congressional Budget Office (CBO) is required to report on the state of public finances.[1] The CBO offers credible long-term projections. They project an average annual growth of 2 percent.[2]
In 2001, U.S. government debt held by the public was $3.3 trillion dollars, amounting to 33 percent of Gross Domestic Product (GDP). Adjusted for inflation, that would be $5.93 trillion in 2024 dollars.
In 2024, U.S. government debt held by the public is $28 trillion, amounting to 99 percent of GDP. So the debt has multiplied almost five-fold in real terms, while it has tripled as a share of GDP. The national debt is growing faster than is the American economy.
In 2035, U.S. government debt held by the public is projected to surpass $50 trillion, amounting to 122 percent of GDP. By 2054, U.S. government debt held by the public is projected to surpass $50 trillion, amounting to 166 percent of GDP. To further complicate matters, the “reserves” of Social Security are forecast to run out by 2033; the “reserves” of Medicare are forecast to run out by 2036. Then the federal government will assume responsibility for making up any difference between assets and obligations.
From the mid-Seventies to today, interest payments on the national debt averaged 2.1 percent of GDP. In 2024 it is 3.1 percent of GDP. In 2033 it will hit 4.1 percent of GDP. This latter figure is highly optimistic because it assumes that the Trump administration tax cuts of 2017 will expire in 2025. There is virtually no chance that this will happen. The interest payment on the debt is growing as a share of GDP.
Why does this ballooning debt matter? The United States government has been cutting taxes and increasing spending for a long time now. Nothing bad has happened. Yet. Many people may assume that creditors will go on lending the government of the United States whatever it needs to fill the deficit. This is not necessarily so. While vast, the pool of global savings available to be borrowed by the United States is not infinite. As the debt grows in tandem with America’s unwillingness to accept fiscal discipline, lenders may conclude that there is a mounting risk of at least partial default. Rather than stopping lending at all, they may demand a “risk premium” in the form of higher interest rates.[3] The point of the higher interest rates is for the investor to recover as much of his/her capital as possible before anything goes wrong. Higher interest payments will crowd-out other spending categories from the budget.
This began as problem-solving or vote-buying in an earlier time. People in both parties now are used to the government giving them things without any immediate cost. Politicians who argue for austerity—lower spending, higher taxes—will lose elections. Many people think that this is pathological. Hard to be puritanical when Puritanism is culturally discredited.
[1] William A. Galston, “A U.S. National Debt Crisis Is Coming,” WSJ, 18 September 2024. Sources: Part 1 of Answers to Questions for the Record Following a Hearing on An Update to the Budget and Economic Outlook: 2024 to 2034 (cbo.gov) and Part 2 of Answers to Questions for the Record Following a Hearing on An Update to the Budget and Economic Outlook: 2024 to 2034 (cbo.gov)
[2] By my own calculation, the American GDP grew by 58 percent between 2001 and 2023. That averages at 2.5 percent per year. However, the turn against globalization could slow growth everywhere. GDP (constant 2015 US$) – United States | Data (worldbank.org)
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