by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Sometime in the early 2030s, or sooner if the country falls into a recession or fights a big war, the federal debt will hit a new record, eclipsing the mark of 106 percent of gross domestic product that was set in 1946 as the government paid for World War II.
That level of debt, projected by the nonpartisan Congressional Budget Office Tuesday, isn’t itself an imminent threat to the country. After all, Japan has debt twice that high and has avoided a crisis so far.
The more immediate risk laid out in the CBO’s report, though, is the government having to spend more money on interest on the debt, leaving less for other priorities, such as infrastructure, law enforcement, and scientific research.
Today, the Treasury is servicing the debt for cheap, thanks to the low interest rates created by the 2008 financial crisis. The government spends about 1.6 percent of gross domestic product on interest, according to the CBO. That’s low by historical standards.
But the cost of servicing the debt could rise quickly as the economy improves and interest rates recover. Within a decade, the CBO sees Uncle Sam spending nearly twice as much, 3.1 percent, on interest costs.