With the expiry of the temporary suspension of the national debt ceiling due on March 15, 2017, Washington loses its authority to continue borrowing from the future to pay for the present. While Washington has a habit of kicking the “debt can” further and further down the road, eventually, the piper has to be paid. An analysis on the Peter G. Peterson Foundation website looks at the fiscal and economic impact of the ever-rising national debt, giving us a sense of how Washington is mortgaging the futures of Main Street America.
Let’s open by looking at how the total federal debt has grown over the past five decades:
Here’s what the total federal debt looks like as a percentage of GDP:
At 104.8 percent of GDP, the total federal debt is just below its fifty-year high of 105.3 percent seen in Q1 2016 and is close to its World War II peak.
Here is a graphic showing how interest rates are projected to be the largest category of federal spending by 2050:
Here is a graphic showing how mounting interest costs will impact the size of the deficit as a percentage of GDP by 2046:
A rising federal debt also has an impact on economic opportunities for Americans. When measured using real incomes (i.e. after correcting for inflation), the CBO estimates that the projected rise in the federal debt would reduce the real income for a 4-person family by as much as $12,000 in 2046, a 3.4 percent loss in income when compared to a scenario where the federal debt level stabilizes at its current level.
Here is a graphic showing how the rise in the federal debt will impact family incomes on a going-forward basis:
Let’s go back to looking at what Washington may have to do to prevent this debt issue from getting further out of control. As I noted above, to return the debt-to-GDP level to the 50 year average of 39 percent, lawmakers would have to invoke a combination of spending cuts and revenue increases that totalled 2.9 percent of GDP or about $560 billion or $1,700 per person starting in fiscal 2017. Here are some suggestions from the Congressional Budget Office:
2.) Increase revenues by equal percentages – this would represent an increase of about 16 percent for each year in the decade from 2017 to 2026. Such a revenue increase would increase annual household federal taxes by an average of $1,900 for households in the middle quintile of the income distribution.
It’s pretty obvious that the fiscal situation in the United States is not sustainable over the long-term. Unfortunately, with an intransigent and highly polarized Congress and Executive Branch, it is highly unlikely that any meaningful and long-term progress will be made during the upcoming debt ceiling crisis. That said, on the upside, there has to be a way that Washington can blame the Russians for this looming fiscal disaster zone. Like the poop on the carpet, Putin is to surely the cause of this mess one way or another.
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