Nov 8, 2023 - Economy

What it would cost to stabilize the soaring national debt

U.S. public debt as share of GDP
Congressional Budget Office; Chart: Axios Visuals

It would take spending cuts or tax increases equivalent to $2,400 per American per year to stabilize the national debt, according to a new book that shows the U.S. government's fiscal situation is more precarious than lawmakers of either party acknowledge.

Why it matters: The numbers amount to an alarm bell about America's fiscal vulnerability at a time when there is bipartisan resistance to steps that might change the course in a major way.

Driving the news: That is spelled out in "Building a More Resilient US Economy," out Wednesday from the Aspen Economic Strategy Group, a group of former policymakers, top executives, and others led by former Treasury secretaries Hank Paulson and Tim Geithner.

  • "Policymakers will need to make difficult spending and tax policy decisions to bring the US fiscal situation into better balance and to maintain our ability to invest in key priorities like national security, health care, and addressing climate change," write Paulson and Geithner.

By the numbers: Harvard economist Karen Dynan works through the arithmetic and shows that the bulk of the increase in the structural deficit has come from higher spending on Social Security and Medicare benefits as the Baby Boom generation retires.

  • In order to reduce deficits to the point where the public debt levels off as a share of the economy — a more plausible goal than balancing the budget outright — Congress would have to enact some mix of spending cuts and tax increases equivalent to 2.8% of GDP, or nearly $800 billion per year.

Yes, but: There is no political momentum for deficit reduction at that scale.

  • Republicans are seeking to extend Trump-era tax cuts scheduled to expire next year and loudly rejected President Biden's claim in his State of the Union speech that they would seek to cut retirement programs. They've vowed to cut the IRS budget, which experts believe would widen the deficit by lowering tax collections.
  • The Biden administration has ruled out tax increases on households making under $400,000. His budget would reduce the deficit by an average of $250 billion per year.

What they're saying: "The challenge posed by high and rising federal debt is significant but manageable as a matter of economics," writes Dynan, an Obama-era Treasury official. "The big problem is political."

  • She adds that "voters are dependent on their elected leaders to communicate the facts and tradeoffs the country faces, and our elected leaders have not done this well."

Disclosure: The author of this piece is a member of the Aspen Economic Strategy Group, attending its meetings in his role as a reporter. He was not involved in creating the policy volume.

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