America’s national debt has officially surpassed 100% of GDP — and the cost of carrying that debt is climbing fast. Last year, the U.S. spent $1 trillion on interest payments alone, more than the entire defense budget. Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, sat down with USA TODAY to explain what this milestone means for ordinary Americans.
Why the Political Urgency Has Faded
Dana Taylor: For decades, the national debt was treated as a major political and economic threat. Today the numbers are dramatically larger, but it feels as if the political and public urgency has waned. Is this an instance of politicians just wanting to kick the can down the road?
Marc Goldwein: A few things are going on. Over the last 15 years, we saw debt run up pretty significantly after the global financial crisis and didn’t see the immediate consequences in terms of higher interest rates or inflation. So I think politicians got a little bit cocky that it couldn’t hurt them. Now, since then, we saw the great inflation of 2021 and 2022 — a lot of that was deficit driven. And now we’re seeing interest rates at new highs, a lot of that is debt driven. The other bit is that deficit reduction is hard. It requires telling somebody they either need to pay more in taxes, receive less in government services, or have lower benefits. Those are not popular positions.
What Debt Over 100% of GDP Actually Means
Dana Taylor: When economists worry about carrying debt larger than the economy, what are they actually worried about?
Marc Goldwein: There’s no magic that happens when your debt goes from 99% of GDP to 101% of GDP. But what this is symbolic of is a debt that’s running away from us. Countries can borrow — it’s often healthy to fight recessions or spread out the cost of emergencies. The challenge is when your borrowing is rising faster than your capacity to hold it. As debt passes the 100% threshold, we enter increased risk of a debt spiral — where high debt pushes up interest costs, interest costs push up debt, and the cycle continues. Even before that spiral, debt can drive higher inflation, higher interest rates, and lower wage growth.
How the Debt Is Already Affecting Your Wallet
Dana Taylor: Is there a point — or are we already past it — where the national deficit starts affecting ordinary life?
Marc Goldwein: We are already at the point that the debt is affecting your life. The high inflation of 2021, 2022, and 2023 was partially driven by very high deficits. The 6.5% to 7% mortgage rate you might be getting on your new home is driven in part by the high debt we have. And wages are a little bit lower than they would have been had we gotten the debt under control. Last year we spent $1 trillion on interest — more than we spent on the Department of Defense, and almost twice as much as we spent on children. That interest is crowding out our ability to make other investments, defend the country, or provide tax relief.
Is This Debt Level Sustainable?
Dana Taylor: The U.S. has borrowed at a scale most countries couldn’t sustain. Is carrying this much debt still sustainable?
Marc Goldwein: The United States is a very rich country with very strong institutions and significant international power, so we can carry debt of 100% of GDP. The question is whether that debt can continue to rise. At some point, markets are going to look at our situation, see we have no path to correct things, and that’s when panic can ensue. We are not on a sustainable trajectory. If we continue on this path, eventually the only possible outcome will be some form of fiscal crisis.
Social Security and the Looming Deadline
Dana Taylor: What incentives would spur Congress to take this issue on?
Marc Goldwein: In about six and a half years, the Social Security Trust Fund is projected to run out of money. Around the same time, the Medicare Hospital Insurance Trust Fund is also projected to run out. The law says when that happens, all Social Security beneficiaries have to take a haircut — their benefits fall by about a quarter. A typical couple retiring in 2032 would see their benefits cut by $18,000. That may be the incentive to act. The risk is that action could be to borrow even more to cover this up, but that would come at a substantial cost in terms of increased risk of debt crisis and higher interest rates.
Dana Taylor: Is there any consensus on how to stem the rising debt?
Marc Goldwein: There is some agreement: capping appropriations on both defense and non-defense spending can help slow debt growth. There’s significant interest in lowering healthcare costs — there’s a tremendous amount of waste in Medicare, Medicaid, and the private sector. And there’s an understanding that we have to get Social Security solvent, which will mean more revenue coming in and changes to the benefit formula. But we’re so polarized right now, and in any given day, it is easier for a politician to promise to give away things than to take them away.
What a Responsible Federal Budget Would Look Like
Dana Taylor: What would a responsible federal budget look like?
Marc Goldwein: A responsible federal budget is one where your debt is not growing faster than the economy. Right now, we’re borrowing $2 trillion a year — that’s 6% of GDP. We’ve suggested a target of 3% of GDP a year, which is the target used in most European countries and one that would put us on a sustainable path. We were there as recently as 2015. All we need to do is bring spending and revenue more closely together, focusing on the most important spending and making the tax code as efficient and pro-growth as possible.
This article originally appeared on USA TODAY.
Add a Comment