Others Dig Out of Debt; U.S. Digs Deeper

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The United States has earned a dubious distinction, according to the International Monetary Fund (IMF): It is the only economically advanced country in the world that plans to dig itself deeper into debt over the next five years.

The IMF is generally concerned about high government debt in economically advanced countries, which have debt-to-GDP ratios that are “at levels not seen since World War II.” Public debt ratios, the IMF says, have been “increasing persistently” over the past 50 years.

The organization’s forecasts, however, indicate that debt-to-GDP ratios in every advanced economy in the world except the United States are on track to come down over the next three to five years.

These other countries are taking advantage of positive economic conditions to start lowering their public debts relative to GDP. Most less-developed countries are doing so as well. (Debt-to-GDP ratios are the most meaningful way to measure public debt over time.)

But while other countries are starting to dig themselves out of debt, the United States is digging in.

“In the United States, the revised tax code and the two-year budget agreement lead to an expansion in the level of economic activity until 2020,” the IMF says. “These measures will give rise to overall deficits above $1 trillion over the next three years, which is more than 5 percent of GDP. This adds to the rising trend in government debt, bringing it to 117 percent of GDP in 2023.”

Graph of US Growing debt relative to all other countries

The IMF notes that its forecasts are “qualitatively similar” to those that were recently released by the Congressional Budget Office in its “Budget and Economic Outlook: 2018-2028.”

Robert L. Bixby, executive director of The Concord Coalition, called that CBO report, “the most alarming budget outlook in our nation’s history.” It not only pointed towards  trillion-dollar-plus deficits starting in the near future, but projected that they would continue indefinitely.

Despite the dire debt projections, even with a steadily growing economy, some in Congress are already pushing for additional deficit-financed tax cuts. Perhaps they slept through their college economics courses. The IMF offers a quick tutorial:

“Countries should use the window of opportunity afforded by the economic upswing to strengthen the state of their fiscal affairs,” the organization says. Deficits and debt should be reduced in “a growth-friendly way.” This could include measures to “increase productivity and promote human and physical capital.”

As IMF Managing Director Christine Lagarde put it to Catherine Rampell of The Washington Post last month: “Because growth is good, we say, ‘When the sun is shining, please fix the roof.’ Build buffers, use your fiscal space to actually do the structural reforms that will improve your overall productivity and your capacity to resist” economic challenges.

What not to do? The IMF urges governments “to avoid fiscal policies that provide unnecessary stimulus when economic activity is already picking up.”

President Trump and Congress would do well to heed the IMF’s advice — and to follow the example of all the other countries that are working to bring down their debts rather than increase them.

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