America's National Debt Challenge
America remains on an unsustainable fiscal path. The national debt is already at its highest level since World War II, and annual deficits are projected to remain on an upward trajectory for the years to come.
America’s fiscal health and economic strength are closely linked. The national debt is also an issue of fairness for the next generation. Young Americans will be saddled with the weight of decisions made by those that come before them, unless thoughtful, forward-looking fiscal decisions are made to strengthen our economic future. A strong fiscal foundation creates conditions that encourage broad-based economic growth: an environment with greater access to capital, increased public and private investments, enhanced business and consumer confidence, and a solid safety net. In turn, those factors improve the lives of Americans by supporting a vibrant economy with rising wages and greater opportunity, productivity, and mobility.
Our Current Fiscal Path
The national debt is nearly as large as the entire U.S. economy and is projected to exceed its record high in just 3 years, according to the Congressional Budget Office (CBO), before it continues climbing in the following years.
Why is our debt rising so dramatically? There is a fundamental imbalance between spending and revenues that will continue to grow in future years. CBO anticipates that federal spending will rise from 23.1 percent of GDP in 2024 to 27.3 percent in 2054, according to the agency’s most recent long-term projections. Revenues are projected to increase slightly during that period, from 17.5 percent of GDP in 2024 to 18.8 percent in 2054 — which means deficits will continue to rise in the decades ahead.
Key Drivers of the National Debt
There are three primary drivers of the overall growth in spending: America’s aging population, rising healthcare costs, and rapidly escalating interest costs. This significant growth in spending is combined with a tax system that is not designed to collect enough revenues to fund the promises we’ve made.
1) Aging Population
Over the next 25 years, the major driver of rising long-term federal spending is the aging of America’s population, as the number of people 65 or older will increase much faster than the working-age population, leading to increases spending on retirement programs.
The first wave of the baby-boom generation has already reached retirement age. Americans are living longer, on average, which means that seniors will spend more years in retirement. In the coming decades, those factors will add substantially to the number of people supported by programs targeted to older Americans, such as Social Security and Medicare.
2) Rising Healthcare Costs
The rising cost of healthcare in the United States is a key driver of the national debt. CBO’s projections anticipate that the federal government’s spending on major healthcare programs, such as Medicare and Medicaid, will climb from 5.6 percent of GDP in 2024 to 8.3 percent in 2054. Additionally, the Centers for Medicare & Medicaid Services note that healthcare spending by all sectors of the economy will grow to reach one-fifth of our entire economy.
On a per capita basis, our healthcare system is the most expensive among other wealthy countries. Yet, America’s health outcomes are generally no better than those of our peers, and in some cases, are worse, including in areas like life expectancy, infant mortality, asthma, and diabetes.
3) Rising Interest Costs
One of the most damaging effects of rising debt is the rapidly growing interest costs.
As the national debt grows and interest rates rise, the United States will spend more of its budget on the cost of servicing that debt — crowding out opportunities to invest in the economy.
Interest costs are set to become the fastest-growing part of the federal budget and will total $12.9 trillion in the next 10 years alone, according to CBO.
4) Insufficient Revenues
It would be one thing if our tax code were designed to fund all the promises we’re making, but it’s not. The U.S. tax system does not generate enough revenues to our spending.
Furthermore, our tax code is also overly complex, confusing, inefficient, and unfair. For example, it remains riddled with tax expenditures, or “tax breaks,” that provide financial benefits to specific activities, entities, and groups of people. Those tax breaks, which totaled nearly $1.8 trillion in 2023, increase annual deficits and can create market distortions that damage economic growth and productivity.
Economic Impact
Putting our nation on a sustainable fiscal path creates a positive environment for growth, opportunity, and prosperity. With a strong fiscal foundation, the nation will have increased access to capital, more resources for future public and private investments, improved consumer and business confidence, and a stronger safety net.
However, if we fail to act, the opposite is also true. If our long-term fiscal challenges remain unaddressed, our economic environment will weaken as confidence suffers, access to capital is reduced, interest costs crowd out key investments in our future, the conditions for growth deteriorate, and our nation is put at greater risk of economic crisis. If our long-term fiscal imbalance is not addressed, our future economy will be diminished, with fewer economic opportunities for individuals and families and less fiscal flexibility to respond to future crises.
Greater Risk of a Fiscal Crisis
If investors lose confidence in the nation’s fiscal position, interest rates on federal borrowing could rise. A rapid increase in Treasury rates could also lead to higher rates of inflation, which would reduce the value of outstanding government securities and result in losses by holders of those securities — including mutual funds, pension funds, insurance companies, and banks — which could further destabilize the U.S. economy and erode confidence in U.S. currency on an international scale.
Reduced Public Investment
As the federal debt mounts, the government will spend more of its budget on interest costs, increasingly crowding out public investments that are critical to economic growth. Right now, the United States spends over $2.4 billion per day on interest payments.
Over the next 10 years, CBO estimates that interest costs will total $12.9 trillion. Within 30 years, CBO projects that interest costs will be the largest federal spending “program” and would be nearly three times what the federal government has historically spent on R&D, non-defense infrastructure, and education combined, programs generally seen as worthy investments in our future.
Reduced Private Investment
Federal borrowing competes for funds in the nation’s capital markets, thereby raising interest rates and crowding out new investment in business equipment and structures. Entrepreneurs face a higher cost of capital, potentially stifling innovation and slowing the advancement of new breakthroughs that could improve lives and spur economic growth. Over time, lower confidence and reduced private investment would slow the growth of productivity and the wages of American workers.
Challenges to National Security
Our fiscal security is also closely linked to national security and our ability to maintain a leading role in the world. As Admiral Mullen, former Chairman of the Joint Chiefs of Staff, put it: “The most significant threat to our national security is our debt.” As the national debt grows, not only are we more beholden to creditors around the globe, but we have fewer resources to invest in our strength and security.
Imperiling Social Programs
America’s high debt also jeopardizes the safety net and the most vulnerable in our society. If our government does not have the resources and stability of a sustainable budget, those essential programs, and the individuals who need them most, are put in jeopardy.
Worsening Economic Opportunities for Americans
Our growing debt also has a negative impact on the incomes and economic opportunities available to every American.
When high levels of debt crowd out private investments, businesses utilize fewer assets, which translates into lower productivity and, therefore, lower wages. On the other hand, reducing federal borrowing has positive effects; according to CBO, income per person could increase by as much as $6,300 by 2050 if we were to reduce our debt to 79 percent of the size of the economy by that year.
In addition, higher interest rates resulting from increased federal borrowing make it harder for families to buy homes, finance car payments, or pay for college. Fewer education and training opportunities stemming from lower investment would leave workers with fewer skills to keep up with the demands of a more technology-based, global economy. Faltering support for research and development would make it harder for American businesses to remain on the cutting edge of innovation, which would hurt wage growth. Furthermore, slower economic growth would have a negative compounding effect as lower incomes lead to smaller tax collections, which put the federal budget further out of balance, making our fiscal challenges even worse.
Take Action
The good news is that this problem is solvable. We can choose a better path — a path of stabilized debt, faster economic growth, broader prosperity, and enhanced economic opportunity and mobility.
To get involved, it’s important to understand the facts. Learn more about how the national debt relates to issues important to Americans and some of the policy options available to lawmakers. If you want help putting the latest developments in context, sign up for our email newsletter, or follow us on Facebook, Twitter, YouTube, or LinkedIn.
Your Senator and Representative needs to know that the fiscal challenge is something you care about. Here is a suggested email message:
“I’m concerned about America’s long-term fiscal outlook. I am seeking your commitment to working on solutions to our national debt, which will lead to a stronger economy, now and in the future. We need action now to begin to stabilize our long-term debt, in order to help the economy grow, keep taxes low, and protect vital programs and priorities for our country."
Find your Senator’s contact information or your Representative’s contact information.