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The public policy blog of the American Enterprise Institute
Looking at the new 10-year budget forecast from the Congressional Budget Office brought to mind this quote from Edmund Burke: “Society is indeed a contract. It is a partnership in all science; a partnership in all art; a partnership in every virtue, and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”
Contracts bring responsibilities, obligations. It’s hard to see how America’s fiscal path satisfies ours to those who have passed and to those still on their way:
1. $8.7 trillion in new publicly-held debt over the decade, bringing the total to just shy of $20 trillion. In 2023 alone, interest on the debt will be nearly $900 billion, four times today’s level.
2. Publicly-held debt as a share of GDP will be 77% of GDP in 2023 — and rising thanks to rocketing entitlement spending. Indeed, it will never fall below 73.1% of GDP. Before the Great Recession, it was 36%.
3. The flood of new debt comes despite tax revenue from 2015 through 2023 being higher than the historical average. We have a spending problem.
The CBO isn’t as elegant as Burke, but it gets its message across:
Such high and rising debt would have serious negative consequences: When interest rates rose to more normal levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they might ordinarily to use tax and spending policies to respond to unexpected challenges. Finally, such a large debt would increase the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.
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