A little more than halfway through November 2024, a bit of history was made with regard to the American economy: the national debt surpassed $36 trillion. This is an eye-opening number-and puts into sharp focus the growing financial woes of the nation. It cries out for immediate attention to fiscal reform. As the national debt continues its upward trend, the questions of its long-range consequences for the economy and future generations press hard for resolution in both political and economic circles.
Key Factors Driving the Surge
Some of the causes that contributed to the U.S. national debt mounting rapidly in recent years include the following:
Pandemic Response: The COVID-19 pandemic has just triggered huge government spending in the form of stimulus checks, unemployment benefits, and emergency responses, like the American Rescue Plan. These have been vital for economic recovery but have largely contributed to increasing the national debt by a significant margin.
Tax Cuts and Spending: Tax cuts, especially under the current Trump presidency, lowered government revenue while spending kept on an upward trajectory. Though some may argue that tax reform is a huge economic benefit, these cuts grow the national deficit.
This has also been reflected in the interest payments due to growing debt. In 2024 alone, it is estimated that the U.S. government will pay approximately more than $890 billion in interest. It is forecast for these to triple by 2032 as the debt burden increases, hence constraining the government’s ability to invest in other priorities.
Demographic changes and healthcare costs: Graying of the U.S. population, combined with increased healthcare costs-especially for Social Security and Medicare-will continue to drive up government spending over the next several decades, imparting additional pressure on the federal budget.
Consequences of Economic Issues with a $36 Trillion Debt
The national debt now has eclipsed the size of the U.S. economy, as the debt-to-GDP ratio approaches 123%. This debt overhang poses a number of very serious economic concerns:
Interest Payments: More federal budget goes into paying the interest on debt, thus decreasing the money that should remain for essential services like health, infrastructure, and defense.
Credit Rating Downgrade: An increasing debt already saw a U.S. credit rating downgrade by Fitch in 2023, and further downgrades may raise borrowing costs by potentially hitting both the government and consumers.
Tax Increases and Cuts to Programs: In order to dampen, if not squelch, the debt, future administrations will have to increase taxes and cut allocations to social programs. While main moves that could reduce the deficit, they may also slow down economic growth and affect Americans’ standards of living.
Projections and Political Debate
The CBO has estimated that if current fiscal policies were extended, the national debt could nearly double to $54 trillion by 2034. The forecast is part of a new OECD economic outlook report that frames the U.S. fiscal imperative in increasingly bleak terms. The American debt time-bomb has likewise become politicised, with the two major parties accusing each other of irresponsibility. Republicans have blamed both the Trump and Biden administrations for their roles in growing the debt, while Democrats believe more government investment is needed in infrastructure and healthcare, and to help the nation recover economically. What Lies Ahead? Over the next few years, the path of U.S. fiscal policy will know a considerable change.
Republicans have not had to face that dichotomy in over a decade, as they now hold the purse strings of the federal budget: how do you wrangle tax cuts and spending restraint at the same time? President Biden’s approach, on the other hand, focuses on spending more to kick-start both economic recovery and infrastructure projects, then preparing America for inevitable disputes about fiscal sustainability. Specifically, the IMF experts said that balanced fiscal adjustments-with targeted spending cuts intertwined with tax reform-would avoid a fiscal crisis. However, this will require considerable bipartisan cooperation-something rather difficult in the current political climate.
