As the country’s more than $34 billion in debt continues to be a priority for some on Capitol Hill, polls show that Americans are also increasingly concerned about the country’s balance sheet.
Although Washington is deeply divided over how to resolve the country’s deficits, there has been some momentum among House Republicans for a special commission to explore ways to improve the country’s fiscal trajectory. These efforts have fueled concerns about cuts to important programs that seniors depend on, such as Social Security and Medicare.
But experts warn that the potential consequences of higher debt could affect all Americans.
Greater interest
Given that the national debt is expected to exceed $54 billion in the next 10 years, experts have sounded alarmed about rising interest rates.
“If the government is borrowing money, it has to raise a lot of money, so that means I have to sell a lot of bonds, which forces interest rates to rise,” said Desmond Lachman, senior researcher at the American Financial Times. Enterprise Institute, a conservative think tank, in an interview.
“If interest rates in general are higher, mortgage rates are higher,” he said. The Federal Reserve has also repeatedly raised interest rates to combat inflation.
“This is important for young people, because they are not in the real estate market,” he added. “They’re not sitting in a house that has a mortgage paid off, they’re the ones that are going to have to go out and borrow money now at a very, very high interest rate.”
In a February report, the Congressional Budget Office (CBO) projected that debt held by the public will increase significantly over the next decade, rising from 99 percent of GDP in 2024 to 116 percent in 2034.
The nonpartisan budget evaluator also estimated that net interest costs in 2025 would be “higher relative to GDP than at any time since at least 1940, the first year for which the Office of Management and Budget reports such data.”
The work market
Experts say higher national debt could have an impact on the job market.
“The bigger the debt, the higher the interest rates,” said David Wilcox, senior fellow at the Peterson Institute for International Economics. “Higher interest rates tend to discourage investment in new capital by companies, and capital makes workers more productive.”
“A higher level of debt would tend to be associated with an economy that is modestly less productive,” he said, “and therefore, in a kind of moderate version of a doom cycle, a less productive economy can support a smaller amount of federal resources. debt.”
Higher national debt could also have an impact on the job market if interest rates also rise, some experts say, while also watching employment in areas such as construction and housing, which can sometimes be more sensitive to interest rates.
“When interest rates rise, people’s mortgages cost more and, as a result, fewer homes are generally built,” Joshua Gotbaum, a guest fellow in economic studies at the Brookings Institution, a left-leaning think tank, said in an interview.
Gotbaum said employment could also be affected by how much and how much the federal government decides to cut spending.
“The biggest issue is assuming that this reduces spending, because every dollar that leaves the federal government is economic activity. It’s paid to someone,” he said.
“Suppose the federal government, to cover its debt, provides fewer subsidies to farmers, which means some farmers will farm less and some will and some farms will close.”
Cuts to main programs
Experts also discussed the potential for further cuts in public spending in the coming years as Congress tries to address the country’s deficits.
“I think what Americans can expect to see is that over the next decade or two politicians will very likely have to make some painful choices,” Wilcox said, including potential “tweaks” on the spending side.
Among some of the proposals lawmakers have floated to combat the national debt is continued spending restraint, including proposals to further restrict annual spending beyond a budget cap agreement approved last year.
Federal analysts predicted at the time that the measure, dubbed the Fiscal Responsibility Law, was projected to reduce more than $1 billion from the country’s future deficits over the next decade.
Conservatives have pushed for tighter restrictions on the process by which Congress crafts the government’s 12 annual funding bills in an effort to reduce spending. But even lawmakers in his own party have noted that some annual spending is not subject to the annual process, including funding for benefits programs.
A new report this week finds that Social Security and Medicare trust funds face solvency threats about a decade from now, as Biden administration officials say better-than-expected economic growth has helped push back exhaustion dates. .
“What we will see with high probability, for example, is the depletion of the Social Security Trust Fund sometime in the early 2030s,” Wilcox said. “The Medicare Trust Fund is also depleted.”
“Therefore, these developments will certainly elevate the fiscal situation to a much higher position on the national agenda than it currently occupies.”
Taxes
Experts say Americans could also see changes on the tax side as Congress works to resolve the national debt.
“If the federal government doesn’t get its act together and start collecting enough taxes to cover what it intends to spend on programs, then the debt will grow,” Gotbaum said.
“If the debt goes up and the interest rate goes up, then taxpayers at that point are going to foot the bill,” he argued, adding, “Your parents avoided those bills, because Congress, instead of raising taxes to cover them, picked up the borrowed money.
While many Democrats have pushed for tax increases aimed at wealthy individuals and businesses, many Republicans have strongly resisted across-the-board tax increases. Instead, Republicans called for steeper spending cuts, with a focus on social programs, which many Democrats in turn rejected.
“The truth is that younger people are going to pay more and get less based on our current tax trajectory,” said David Walker, former U.S. comptroller general, in an interview. “At the same time, they will face much tougher competition in an increasingly interconnected and interdependent world.”
This story originally appeared on thehill.com read the full story
