The U.S. is facing a profound fiscal challenge as the federal government’s unsustainable debt levels will worsen significantly if left unchecked and every person in America will be on the hook to pay it down. The magnitude and impact of this potential but avoidable financial tsunami was described in a February 15, 2024, Government Accountability Office (GAO) report.
Public debt reached 97 percent of GDP in 2022, and is projected to hit 106 percent within 10 years, matching its historical peak of 106 percent at the end of World War II. Large annual budget deficits, where spending exceeds revenue, are the main driver of debt growth.
According to GAO, if Congress fails to change course and current spending levels continue, the debt will balloon to more than 219 percent of GDP by 2051, just as Millennials, the largest generation in American history, begin to retire in droves. Interest payments will rise from 1.8 percent in 2019 to 3.2 percent of GDP by 2030 and 7.9 percent by 2052, crowding out other federal spending.
GAO projects that “the federal government will pay more than $1 trillion in net interest costs every year starting in 2029.” If the Federal Reserve attempts to ameliorate this high cost of borrowing by setting artificially low interest rates, known as debt monetization, the price inflation Americans suffer from currently will be seen as mild compared to what will happen then.
As GAO has done many times, the report again urges Congress to develop a comprehensive fiscal plan to address the long-term outlook and stabilize the federal debt-to-GDP ratio. Any plan to reach a sustainable debt-to-GDP target must establish clear fiscal rules that constrain both discretionary and mandatory spending.
On the discretionary side, lawmakers can start with the recommendations in Citizens Against Government Waste’s 2023 Prime Cuts report, which would save $402.3 billion in one year and $4 trillion over five years. A serious fiscal plan must also reform the federal mandatory spending programs known as “entitlements” that are primarily responsible for the increase in deficit spending.
If Congress and the Biden administration fail to act as soon as possible to correct this fiscal course, Americans will face punishing economic consequences. There will be a significant hit to the United States’ creditworthiness and reputation around the world as the threats of runaway inflation or a sovereign debt crisis loom on the horizon. This makes the debt not only a fiscal issue, but also a national security issue.
As JP Morgan CEO Jamie Dimon said in agreement with former House Speaker Paul Ryan (R-Wisc.), the debt is the “most predictable crisis” in history, which means it is also avoidable. The solutions are readily available, but the will to adopt them is so far lacking.
The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.
