The federal government’s debt has risen from less than 40% of GDP a decade ago to 78% now, and the Congressional Budget Office (CBO) predicts that the ratio will rise to 96% in 2028. Because foreign investors hold the majority of US government debt, this projection implies that they will absorb more than $6 trillion in US bonds during the next ten years. Long-term interest rates on US debt will have to rise substantially to induce domestic and foreign investors alike to hold this very large increase.
Why is this happening? Had last year’s tax legislation not been enacted, the 2028 debt ratio would still reach 93% of GDP, according to the CBO. So the cause of the exploding debt lies elsewhere.
The primary drivers of the deficit increase over the next decade are the higher cost of benefits for middle-class older individuals. More specifically, spending on Social Security retirement benefits is predicted to rise from 4.9% of GDP to 6%. Government spending on health care for the aged in the Medicare program – which, like Social Security, is not means tested – will rise from 3.5% of GDP to 5.1%. So these two programs will raise the annual deficit by 2.7% of GDP.
The U.S. debt burden may soon be in the same league as that of Italy, Greece, & Portugal, with or without the recently-passed tax cuts. https://t.co/CpwIFWux94
— Paul Banura (@pbanura) May 29, 2018