A U.S. National Debt Crisis Is Coming
Trump and Harris are determined to ignore the problem—at the country’s peril.
Despite intensifying polarization, the Republican and Democratic parties are alike in one important respect: Both now behave as though budget deficits don’t matter. Red and blue politicians alike seem to think we can increase spending, cut taxes indefinitely, and borrow whatever we need to close the gap while running up the national debt—all without paying a price.
Why not make everyone happy by eliminating taxes altogether and borrowing everything? The answer is obvious: No prospective lenders would believe that they’d be repaid in full. They would thus demand ever-higher rates of interest on debt. Eventually, the merry-go-round would grind to a halt, triggering a crisis the likes of which the U.S. has never faced.
Our current course—beset with rising net interest outlays and stagnant revenue—could also halt the merry-go-round, though in slow motion. At some point, the volume of debt needed to finance our deficits would exceed lenders’ willingness to lend their cash reserves on terms that wouldn’t ruin the economy.
That this hasn’t yet happened is no evidence that it won’t or can’t. It proves only the wisdom of Adam Smith’s famous reminder that “there is a great deal of ruin in a nation.” We can recover from episodic folly, but if we persist in it, we’re asking for trouble.
Let’s recall recent history. The last time the U.S. federal government had a budget surplus was in 2001. Federal debt held by the public stood at $3.3 trillion, about 33% of gross domestic product, and the government was on track to pay it off completely by the end of the decade.
Over the next two decades, the combination of tax cuts, spending increases, costly wars and the fiscal pressure of an aging population reversed this trend. The national debt held by the public is now above $28 trillion and is 99% of GDP. The 2024 budget deficit alone will be nearly $2 trillion, which is 7% of GDP. The Congressional Budget Office projects that by 2035 debt held by the public will top $50 trillion and total debt will equal 122% of GDP.
These numbers may sound abstract, but they have real consequences. Over the past half-century, interest payments on the federal debt averaged 2.1% of GDP, compared with 3.1% this year. If current trends continue, the annual interest payment will reach $1.7 trillion—4.1% of GDP—by 2034. The CBO is required to base its estimates on current law, which includes a planned termination of many of the 2017 tax cuts next year. Extending those tax cuts would make the deficit and debt projections even worse. The budget office projects that defense spending, which has averaged 4.2% of GDP over the past 50 years, will shrink to 2.8% by 2034. The growing burden of interest payments, including to foreign creditors, makes it harder to afford the national security we need.
Perhaps because a national-debt crisis seems distant and intangible to the average American, voters are focused on more urgent matters, such as high prices, immigration and abortion. But it’s the duty of public officials—especially candidates for high office—to tell the people what they need to know, not only what they want to hear. Ignoring tough issues may yield short-term gains for politicians, but future generations will judge their silence harshly.
Politicians should start by talking frankly about the social safety net. Donald Trump agrees with Kamala Harris and most Democrats that Social Security and Medicare must be preserved for future generations without benefit cuts. But the stream of revenue into these programs isn’t enough to finance current benefits, and both programs are running deficits. Social Security’s reserves are projected to run out by 2033, Medicare’s by 2036. Republicans who back Mr. Trump on Social Security and Medicare are tacitly endorsing increased revenue for these programs. Why not level with the American people about the coming crisis and persuade them to begin phasing in the added revenues from taxes needed to forestall it?
The balanced budgets we enjoyed at the end of the 20th century won’t return anytime soon. Fortunately, fiscal sustainability doesn’t require this. As I’ve argued in previous columns, politicians should at a minimum stabilize the national debt as a share of GDP so that the burden of interest payments and debt refinancing grows no faster than the economy. If long-term projections for 2% annual economic growth and inflation rates are accurate, this target would require a cut of about $9 trillion, or 40%, in addition to the debt projected over the next decade. Bringing Social Security and Medicare into balance would be a big step toward this goal, but we would have to do more to meet it. We can’t ignore the deficit and debt indefinitely, even though we like to pretend that we can.