What Rising U.S. Debt Means for Americans

While the nation's debt of more than $34 trillion remains a priority for some on Capitol Hill, polls have shown that Americans are also increasingly concerned about the nation's record.

Although Washington is deeply divided over how to tackle the nation's deficits, there has been some momentum among House Republicans in favor of a special commission to explore ways to improve the trajectory budget of the country. These efforts have fueled concerns about cuts to key programs that seniors rely on, like Social Security and Medicare.

But experts warn that the potential consequences of higher debt could impact all Americans.

Higher interest

With the national debt expected to exceed $54 trillion over the next decade, experts are sounding the alarm over rising interest rates.

If the government borrows money, it has to raise a lot of money, which means I have to sell a lot of bonds, which drives up interest rates, said Desmond Lachman, a senior researcher at the American Enterprise Institute. , a conservative think tank, in an interview.

If interest rates in general are higher, so are your mortgage rates, he said. The Federal Reserve has also repeatedly raised interest rates to combat inflation.

This is important for young people because they are not present in the housing market, he added. They're not sitting on a house that has the mortgage paid off, they're the ones who are going to have to go out and borrow money now at a very high interest rate.

In a February report, the Congressional Budget Office (CBO) projects that government debt will increase significantly over the next decade, from 99% of GDP in 2024 to 116% in 2034.

The nonpartisan budget watcher 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 published such data.

The job market

Experts say a higher national debt could impact the job market.

The more debt, the higher interest rates will be, said David Wilcox, a senior fellow at the Peterson Institute for International Economics. Higher interest rates tend to discourage businesses from investing in new capital, and capital makes workers more productive.

“A higher level of debt would tend to be associated with a slightly less productive economy,” he said, “and therefore, in a sort of soft version of a doom loop, a less productive economy can sustain a lower amount of federal debt.

Higher national debt could also impact the job market if interest rates also rise, some experts say, while noting that employment in fields like homebuilding and construction can sometimes be more sensitive to interest rates.

When interest rates rise, mortgages cost more and, as a result, fewer homes are built, Joshua Gotbaum, a visiting 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 what and how much the federal government decides to cut in spending.

The bigger problem is assuming it cuts spending, because every dollar coming from the federal government represents economic activity. This is paid to someone, he said.

Suppose the federal government, to cover its debt, gives fewer subsidies to farmers, which means that some farmers will farm less, others will, and some farms will be closed.

Cuts to key programs

Experts also discussed the possibility of further government spending cuts in coming years as Congress attempts to tackle the nation's deficits.

I think what Americans can expect is that over the next ten or twenty years, politicians will very likely have to make some painful choices, Wilcox said, including possible adjustments on the spending.

Among the proposals put forward by lawmakers to tackle the national debt is continuing to cut spending, including proposing to further limit annual spending beyond the budget limits set by the deal passed last year.

Federal analysts predicted at the time that the measure, called the Fiscal Responsibility Act, was expected to reduce the nation's future deficits by more than $1 trillion over the next decade.

Conservatives have called for tighter constraints on the process by which Congress crafts the government's 12 annual funding bills, with the aim of reducing spending. But even lawmakers in their own party have noted that some portion of annual spending is not subject to the annual process, including funding for social programs.

A new report released this week found that Social Security and Medicare trust funds face solvency threats in about a decade, as Biden administration officials say better economic growth than planned helped to push back the sell-out dates.

What we will see with a very high probability, for example, is that the Social Security trust fund will be exhausted by the early 2030s, Wilcox said. The Medicare Trust Fund is also depleted.

These events will therefore surely place the fiscal situation much higher on the national agenda than it currently occupies.

Taxes

Experts say Americans could also see changes on the fiscal side as Congress works to tackle the national debt.

If the federal government doesn't get its act together and start raising enough taxes to cover what it wants to spend on programs, then the debt will rise, Gotbaum said.

If the debt increases and the interest rate increases, then taxpayers will foot the bill, he argued, adding: Your parents avoided these bills, because Congress, instead of raising the taxes to cover them, borrowed the money. money.

While many Democrats have pushed for tax increases targeting wealthy individuals and businesses, many Republicans have staunchly resisted tax increases across the board. Republicans have instead called for deeper spending cuts, with an emphasis on social programs, which many Democrats, in turn, have backed away from.

“The truth is that young people are going to pay more and get less based on our current fiscal trajectory,” David Walker, former U.S. comptroller general, said in an interview.

“At the same time, they're going to face much tougher competition in an increasingly interconnected and interdependent world,” added Walker, who now serves on the advisory board of Main Street Economics.

This story was updated at 9:27 a.m. on May 9.

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