New nonpartisan reports on the soaring national debt are highlighting long-term concerns over the stability of our nation’s finances. Experts warn that this instability poses a direct threat to economic growth, as increased borrowing costs could lead to higher interest rates for consumers, stifling innovation and investment.
Here are Five Facts on the national debt.
- New analysis by the Congressional Budget Office shows national debt levels rising to 166 percent of GDP by 2054.
A higher debt-to-GDP ratio provides a snapshot of a nation’s overall fiscal health and its ability to pay back its debts. The debt-to-GDP ratio sat at 97 percent at the end of fiscal year 2023. According to the Committee for a Responsible Federal Budget, a debt-to-GDP ratio of 166 percent would be double the level before the start of the COVID-19 pandemic.
2. Recent simulations by Bloomberg show an 88 percent chance that the debt-to-GDP ratio remains “on an unsustainable path.”
Bloomberg analysts noted that this outcome was a particular concern due to the fact that the U.S. economy is already at record low levels of unemployment and seeing solid rates of growth – meaning there are few opportunities to grow the economy much faster than current rates. Leading figures in the financial industry have been sounding the alarm on the growing debt, including BlackRock CEO Larry Fink, who recently called the debt crisis “more urgent” than any other time he could remember.
3. America spent $659 billion in 2023 just paying interest on the national debt.
That figure is nearly twice the amount paid in 2020 ($345 billion) and is equivalent to 2.5 percent of America’s total economic output. Interest payments now account for the fourth largest item on the government’s spending sheet. It’s projected that by the end of the decade, America will spend more on servicing the debt than on defense.
4. Federal spending on Medicare as a percentage of the economy is projected to nearly double over the next three decades.
While the costs of paying the debt are continuing to rise, an aging population means more Americans will be tapping into Medicare, as well as Social Security in the coming years. From the Peter G. Peterson Foundation, “the Congressional Budget Office projects that Medicare spending will nearly double over the next 30 years relative to the size of the economy — growing from 3.1 percent of GDP in 2023 to 5.5 percent by 2053.”
5. Experts say growing national debt can lead to higher interest rates for consumers.
As the national debt increases, the federal government's borrowing costs rise, which can lead to higher interest rates across the economy. A 2022 study by the American Enterprise Institute estimated that a one-percentage-point increase in the federal debt-to-GDP ratio would lead to a 4.5 basis point rise in the yield on 10-year Treasury notes. Increased borrowing costs can dampen economic growth by stifling innovation and reducing investments in business equipment and structures, potentially leading to lower productivity and wages over time.
