Since 2007, the national debt held by the public has leaped from 35% to 100% of GDP. This debt surge — which is unprecedented outside of World War II — is projected to accelerate further as Social Security and Medicare shortfalls, rising interest rates, and continued tax cuts and spending expansions threaten to push the debt to 200% of GDP within the next few decades.1 At that point, interest alone may consume half or more of all tax revenues, elevated interest rates may hit families and businesses, and a debt crisis is possible.
Most past debt surges were driven by temporary factors such as wars and recessions whose costs eventually went away. The structural budget deficits of the early 1980s motivated five major deficit reduction deals to bring budget surpluses by 1998. Yet the current expansion of more persistent, dangerous budget deficits has been shrugged off by most Congress members, presidents, and even voters. Much of the resistance to reform can be explained by the inescapable mathematical reality that most savings will have to come from the traditional third rails of Social Security, Medicare, and middle-class taxes.
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Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here.