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National Debt to Surpass 150% of GDP if no Cuts are Made

             6/28/2018

Elizabeth Warren

                                                                                                                                                                                                                                                 

According to a new report from the Congressional Budget Office, the United States federal debt is projected to increase drastically for the foreseeable future unless serious measures are taken to reduce it. The consequences of runaway spending, a potential debt crisis could have crippling long-run effects on the US economy.

In the next 30 years, the debt as a percentage of the GDP is projected to double, exceeding 150 percent. A debt-to-GDP ratio that high in the US usually only happens during wartime, such as during World War 2, when the government needs huge sums of short-term money to buy weapons and recruit soldiers en masse, but the current projections exceed the worst year, 1946, by over 30 percent. Additionally, the federal budget deficit between income and spending is projected to rise, not quite as sharp as the debt, from 3.9% to 9.5% The CBO’s prediction is about three percentage points lower this year than last year but is still headed in a dangerous direction.

The budget office cites rising costs especially in social security and Medicare as the primary drivers of the increase. As a larger block of the US population grows older, caring for them becomes significantly more expensive. The end result is a smaller share of the population paying to sustain a larger share. A contributing factor to the Medicare issue is the rising costs of healthcare services themselves. With pharmaceutical companies raising the costs of their products and procedures, the government will have to pay more per person as well as for a more substantial number of people.

The office also cites a lack of tax revenue as a potential complication, since the recent tax cuts meant the government takes less of corporate revenue. They state that federal laws passed preventing future tax increases would result in “even larger increases in debt.” It is generally the hope of small government advocates that lower taxes will stimulate so much growth and productivity that the government will actually take in more money due to a larger amount of wealth to tax, even if the percent of the total is lower. The long-term effects of this year’s tax cuts on growth and tax revenue are still relatively early to determine.

In order to reduce the debt to the average level for the last 50 years, about 41%, the CBO states that spending cuts and tax revenue increases must amount to 3% of the GDP every year between 2018 and 2048, but the longer lawmakers continue to spend at their current rate, the harder it will be to reduce debt without either resorting to more extreme measures or ruining investor confidence in the country, slowing growth significantly.

Left and right-wingers have essentially opposite approaches to the issue. The left tends to focus on extracting more money from big corporations and the rich to pay for what they believe to be essential, non-negotiable government services that the poor rely on. On the other hand, the right believes in removing as many barriers and restrictions that slow down the economy.

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