The National Interest: Is America Headed for a Debt Crisis?

Article by James Pethokoukis in The National Interest Org.

The most recent fiscal forecast from the Congressional Budget Office sees a historic amount of debt in America’s future. Moving past the impact of the coronavirus pandemic over the next few years, the CBO sees annual federal budget deficits increasing from 4 percent of GDP in 2026 to 13 percent by 2050. That would be larger in every year than the average deficit of 3 percent of GDP over the past 50 years. The national debt would be a lot bigger, too. CBO projects that by the end of 2020, federal debt held by the public is projected to equal 98 percent of GDP, 107 percent (“the highest amount in the nation’s history,” the CBO adds) in 2023, and 195 percent of GDP by 2050.

The CBO concludes: “High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.”

Now, all those numbers assume current laws governing taxes and spending stay the same. But the current Democratic and Republican presidential candidates have taxing and spending plans that, if implemented, would alter that status quo. Here is the “central estimate” calculation from the Committee for a Responsible Federal Budget: “… we find President Donald Trump’s campaign plan would increase the debt by $4.95 trillion over ten years and former Vice President Biden’s plan would increase the debt by $5.60 trillion. Debt would rise from 98 percent of Gross Domestic Product (GDP) today to 125 percent by 2030 under President Trump and 128 percent under Vice President Biden, compared to 109 percent under current law.”

So more debt and bigger deficits. But how much is too much? It seems the general consensus these days is ...

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