With the national debt looming around $20 trillion and the projected debt of $30.743 trillion in 2027, Congress and the President have a responsibility to cut the national debt before it’s too late. To shed light to the roots of the problem, The Heritage Foundation recently hosted an event on the debt’s causes, costs, and consequences. At the event, the panelists highlighted many problems regarding debt payments, entitlements, demographics, and the impacts on the economy.
This problem is a result of overspending. Historically, tax receipts have averaged 17 percent of GDP, while spending has averaged 20 percent.
Higher interest rates will increase the debt. While the U.S. interest rate is hovering around 1.5 percent, investors and economists expect interest rates will increase to higher levels, due the rise of inflation and concerns over the mounting federal liabilities. Higher interest rates will increase the costs to service the debt. On its current path, interest payments on the debt consume 21 percent of the federal budget in the next few decades: up from 6 percent in 2016.
With changing demographics, entitlement programs are the main drivers of debt. Social Security, Medicare, and Medicaid have greatly expanded and make up a growing share of outlays. Worse, the programs are piling up massive unfunded liabilities.
As the population grows older and the growth rate declines, the tax base will not be able to handle the government debt. As the population ages, there are fewer taxpayers and potential workers for each retiree; the decrease in this ratio results in less economic growth and lower government revenues.
Heritage’s Romina Boccia compared the debt to the fate of the Titanic: our lawmakers can steer the budget on a path away from default, but they must take action sooner rather than later. The problem is clearly defined, what is needed now is action.
National Taxpayers Union Foundation (NTUF) and the U.S. Public Interest Research Group (U.S. PIRG) paved the groundwork for lawmakers looking to find Common Ground for progress. Although the two groups have long had divergent policy views on the government’s role in regulation, or what smart tax reform should look like, NTUF and U.S. PIRG joined forces to identify federal programs that both Republican and Democratic lawmakers should recognize as wasteful and inefficient uses of taxpayer dollars. The spending reforms suggested in the report would reduce the deficit by over $260 billion, including:
$124 billion in savings from eliminating wasteful subsidies to agribusiness and other corporations
$78 billion in savings from ending low-priority or unnecessary military programs
$25 billion in savings from improvements to program execution and government operations
$36 billion in savings from reforms to major entitlement programs
The proposals are specific, detailed, and actionable items that Congress and the Administration could pursue right now to reduce spending, ensure stability for America’s long-term budget, and help the budget steer clear of a fiscal disaster.