Michael Strain of the American Enterprise Institute warns that both major-party presidential candidates are ignoring an important issue.
Donald Trump and Kamala Harris seem to agree that one of the nation’s most important challenges should remain unaddressed — a problem that has been slowly eroding the foundations of economic prosperity for decades.That problem? The national debt.
The non-partisan Congressional Budget Office reports that federal debt held by the public averaged 48.3 per cent of GDP for the half century ending in 2023. The debt is currently far above its historic average. The CBO projects that next year, 2025, the national debt will be larger than annual economic output for the first time since the US military build-up in the second world war.
In 1946, the ratio of debt to annual GDP was 106.1 per cent. The CBO projects that the debt will top that amount in 2027 and will rise to 122.4 per cent in 2034. It is expected to be on a steady climb thereafter.
What’s driving this trajectory? The specifics of the US debt situation point to a clear culprit. By 2034, the CBO expects federal tax revenue to be 18 per cent of annual GDP — 70 basis points above its average over the past 50 years. At 24.9 per cent, federal outlays in 2034 are projected to be nearly 4 per cent of GDP above their historic average.
In other words, both tax revenue and government spending are projected to rise over the next 10 years, but spending is projected to rise at a much faster rate. The US has a spending problem, not a revenue problem.
More precisely, the US has three main spending problems: Social Security, Medicare and interest payments on the debt. Other government expenditure — such as on the military, education, law enforcement, disaster relief and national parks — is projected to fall. Strikingly, the budget office expects the US to spend more on interest payments than on national defence in 2024.
