Is There No Harm in Waiting to Solve Our Debt Problems?
Another debt myth is that even if the long-term debt outlook is a problem, there is no need to address the debt now – it can be dealt with later. This argument ignores that the longer policymakers wait to control debt, the more difficult it will become. For example, reducing debt to around the historical average of about 40 percent of GDP by 2040 would require tax increases or spending cuts of about 2.6 percent of GDP per year if enacted today, or starting at $1,450 per person per year. Waiting a decade to begin would require adjustments of over 4 percent of GDP, or starting at $2,700 per person per year (in today’s dollars).
Waiting longer literally makes the problem bigger since the costs are spread over fewer people and less time is available to take advantage of compound interest. Waiting to enact changes will also reduce the government’s ability to exempt more vulnerable individuals from benefit cuts or tax increases, phase changes in gradually, or give affected individuals enough warning in order to adjust. Thus, by delaying debt reduction it will not only make our debt problem harder to solve, but the solutions and policy changes required will be more abrupt and less well-targeted.