As political candidates offer vague promises of spending restraint and Congress considers the administration’s new budget, Americans face an unpleasant fiscal landmark: before we get to the election in November, the national debt will exceed the U.S. economy’s entire annual production.
The debt has not exceeded the Gross Domestic Product (GDP) since World War II. Once that war was over, however, the debt stabilized and then steadily fell as a percentage of the economy.
Unfortunately, nothing like that is on the horizon today. On the contrary, government projections show the federal debt – which recently topped $15.5 trillion -- continuing to increase rapidly in the years ahead as we continue to borrow and as today’s unusually low interest rates eventually rise toward their historic average.
The Concord Coalition’s projections, based on reasonable assumptions about future decisions by elected officials, show federal debt snowballing even more rapidly than government projections do. And if the economy falters, the debt would grow even faster.
Even sweeping fiscal reform plans, such as those recommended a year ago by President Obama’s bipartisan fiscal commission, envision the federal debt continuing to rise for decades.
A few facts about the federal debt to keep in mind:
+ It consists of two parts: Money the government has borrowed on the world’s financial markets (nearly $10.8 trillion), and money the government has essentially borrowed from itself (more than $4.7 trillion).
+ The $10.8 trillion that was borrowed on the financial markets is known as “debt held by the public.” The amount of this money that the United States borrows from foreign countries has risen rapidly over the last 20 years, and now represents around half of U.S. borrowing.
+ China is the largest holder of the U.S. government’s debt and has been increasingly vocal in its criticism of America’s fiscal irresponsibility. Other countries with which we have differences also hold substantial amounts of the federal debt.
The danger is not so much a particular level of debt but whether it is affordable and stabilized. Our debt today is not stabilized and, on its current path, is unaffordable.
So elected officials must find ways to rein in the projected growth of the national debt. Everything must be on the table, including reforms that close expensive tax loopholes and put Social Security and Medicare on sustainable paths.
Addressing the fiscal gap will involve politically difficult choices to restrain the growth of popular programs or raise more money to pay for them. The issues at stake have profound consequences for our nation's future, and compromise will be necessary. That means the American people must be included in the discussion.
That’s why the Concord Coalition is urging members of Congress to pair up, across party lines, for joint public forums in each other’s districts. Such forums could present agreed-upon facts and engage the public in the search for solutions that can win bipartisan support.
Concord's deficit-reduction exercises and other public engagement efforts across the country have consistently shown that people of all ages and varied ideologies are willing to make hard budget choices -- as long as there is shared sacrifice, with everything on the table.
Congress still has much work to do, and public support will be required for the difficult reforms that are necessary to put the country on a more responsible path in the years ahead.
The logical place to start is with the compromise bipartisan recommendations of the president’s fiscal commission (Simpson-Bowles) and the Bipartisan Policy Center’s Debt Reduction Task Force (Rivlin-Domenici).
High government borrowing is a time bomb that will go off as currently low interest rates return to normal and as many more baby boomers begin receiving Social Security and Medicare benefits. Progress on fiscal reform will be difficult in an election year. But further delay would be irresponsible and could jeopardize our children’s future.