Marc Goldwein: National Debt: Yes, Rising Annual Deficits Threaten the U.S. Economy
Marc Goldwein is the senior vice president and senior policy director of the Committee for a Responsible Federal Budget. He recently wrote a column for the National Debt issue of CQ Researcher in a pro/con debate opposite Dean Baker, co-director of the Center for Economic and Policy Research. Marc's piece is reposted here.
The national debt today is higher as a share of the economy than at any time in U.S. history aside from the aftermath of World War II. And the debt is projected to rise indefinitely and unsustainably in the coming years. Annual deficits need not be sharply reduced immediately, but with trillion-dollar deficits slated to return in only a few years, policymakers must enact a long-term debt-reduction plan sooner rather than later.
The long-term consequences of high and rising debt are numerous. Ultimately, the U.S. debt load will reduce private investment, slow wage growth, raise interest rates, shrink the economy and increase the likelihood of an eventual fiscal crisis. High debt levels also force the government to spend more on debt service — the interest owed to domestic and foreign bondholders — leaving fewer dollars available to finance new investments, national defense, anti-poverty programs or tax relief. Perhaps most significantly, debt cannot forever rise faster than the economy; and with debt growing unsustainably, the country is making promises we simply cannot keep.
The nation does not need to balance the budget, and deficit reduction must not happen immediately. Indeed, if deficit reduction occurs too rapidly it could temporarily hurt economic growth. But changes should be enacted today that gradually slow the rapid growth of health and retirement spending, raise new revenue through a more efficient and pro-growth tax code and reprioritize government spending from consumption toward investment.
A combination of thoughtful entitlement reform, tax reform, immigration reform, regulatory reform and deficit reduction will put the country on a more sustainable path and at the same time grow the economy and increase wages and income.
Advocates of higher deficits will marshal one argument after another against cutting even a dollar of spending or raising even a dollar of taxes. Pretending deficits don't matter may allow special interests to get new tax cuts and new entitlement programs from Congress, but it imposes a large implicit tax on future generations.
If something sounds too good to be true, it probably is. The United States can't forever spend far more than it brings in, and we can't indefinitely borrow our way to prosperity. A smart, gradual and significant long-term deficit-reduction plan is the best way forward for our debt-burdened nation.
"My Views" are works published by members or staff of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the Committee.