America’s Impending Debt Crisis

In the current political landscape, the issue of America’s national debt is noticeably absent from the discourse of leading presidential candidates. This silence is not just a political oversight but also a perilous neglect of one of the most pressing economic challenges facing the nation.

Historically, the US has seen its debt-to-GDP ratio balloon from a manageable 39% in the late 20th century to a staggering 60.6% by 2010. Projections by the Congressional Budget Office (CBO) paint an even grimmer picture, with the debt expected to match the GDP by 2025 and soar to 122.4% by 20342. This trajectory is unsustainable and demands urgent attention.

The root of this fiscal imbalance lies not in insufficient tax revenue but in excessive government spending. From 1974 to 2023, tax revenue averaged 17.3% of GDP, while government spending averaged 21%. By 2034, spending is projected to rise to 24.9% of GDP, outpacing revenue growth. This imbalance is primarily driven by three key spending categories, namely, Social Security, Medicare, and interest payments on the national debt. Other government expenditures are expected to decline, further highlighting the unsustainable nature of current fiscal policies.

Addressing this issue requires more than just increasing tax revenue. Even if previously approved tax cuts were fully repealed as the resulting increase in revenue would be insufficient to counteract the projected rise in spending. The impending insolvency of the Social Security trust fund by 2035 and Medicare’s hospital insurance trust fund by 2036 adds another layer of urgency. Both presidential candidates have opposed cuts to these programs, yet they have failed to present viable alternatives to prevent such cuts.

Having served in numerous advisory capacities in UN and the World Trade Organization (WTO), I concur with economists that the consequences of rising national debt are profound. A fiscal crisis could lead to higher interest rates, volatile equity markets, and increased inflation. Moreover, the growing debt reduces private investment, lowers productivity, wages, and workforce participation. The opportunity costs are significant, as large debt service outlays limit the government’s ability to invest in critical areas such as national defense, scientific research, and economic opportunity expansion.

The silence of America’s political leaders on the issue of national debt is a dangerous oversight. It is imperative that this issue be brought to the forefront of political discourse and addressed with the urgency it deserves. Future US economic strength and the prosperity of the nation is a vital factor in global stability and requires urgent attention to mitigate any possible fallout as a result of this bulging debt.