CED report highlights dangers of US debt proliferation

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NEW YORK, March 15, 2022 /PRNewswire/ — US debt is at a precarious new level, rapidly approaching historic highs not seen since the end of World War II. Then the combat troops would return home after a decade of post-war economic prosperity and production. Today, the country has faced three costly crises over the past 15 years: the financial crisis, the pandemic and the war in Ukraine. These events demonstrate that this nation must be financially prepared to be a true world leader. It must not continue to teeter on the brink of financial stability.

Today, the Committee for Economic Development, the public policy center of The Conference Board (CED), released a new solutions brief, Coping with Fiscal Debt: A Policy Roadmap. As detailed in the report – the latest in a series of solution briefs on sustaining capitalism – the country’s debt currently stands at about 100% of gross domestic product, about three times as much as it did in 2000.

Moreover, the increase in public debt will quickly slow down the growth of the private sector. The more credit the federal government demands from capital markets, the less funding there will be available for private enterprise and innovation. Small businesses will find it difficult to borrow through intermediaries using short-term loans with higher interest rates. Instead, investors will focus on the safer, slower-growing part of the corporate sector, to the detriment of economic dynamism and innovation, U.S. global leadership, and longer-term growth of the quality of life.

“Without immediate action to reduce the rising costs incurred by the federal government, we are steering the country’s economy into uncharted waters,” warned Dr. Lori Esposito Murray, president of DEC. “Any meaningful and truly impactful solution must start now, with the cooperation of the private sector and policymakers on both sides of the aisle, to turn the tide. Leaving the nation’s disheartening fiscal situation on the back burner risks crippling the economy of irreparable way. Mustering the political will to prevent this – and set the nation on the path to prosperity – is imperative.”

Key information from the solutions overview includes:

Over the next decade, US debt will rise above historic highs:

  • Today, the federal debt is about 100% of GDP. Over the next decade, the debt burden will exceed historic highs not seen since the end of World War II.
  • By 2051, this figure is expected to double, exceeding 200% of US GDP.

Debt servicing will soon become the fastest growing component of the federal budget:

  • By 2051, government debts will have grown so much that projected revenues will not be enough to pay debt service, social security, and health insurance alone.
  • The resulting deficits will be so large that they can only be avoided through a combination of painful cuts to national defense and ownership programs, Medicare and Social Security, and increases in taxes and other sources of income.
  • If federal interest rates were to rise even slightly, the economic impact could be catastrophic. CBO calculations show that if the interest rate on outstanding debt increases by 0.05% per year, the debt held by the public will reach 260% of GDP, instead of the 202% in their projections. reference.

As debt rises, the US labor force will shrink:

  • As baby boomers retire and birth rates slow, the U.S. labor force is expected to decline from its peak growth rates in the second half of the 20and century.
  • Increased immigration would help offset the decline in the American labor force. However, to bring the growth of the American labor force to the figure of 2% observed in the 1950s-1980s, the number of immigrant workers entering the United States would have to increase fivefold. So faster-than-budgeted economic growth in the long term can only be achieved through historically rapid productivity growth – and that is unlikely.

Key recommendations from the solutions brief include:

In its new solutions brief, DEC offers six steps to halt the nation’s slide into mounting debt and meet budget priorities. They understand:

  • Facing the problem: The nation cannot right its fiscal ship without political leaders on both sides who recognize the peril and are willing to work together in the interests of the nation. The responsibility for difficult decisions must be shared and budgetary responsibility must once again play a role in budgetary deliberations. Policy makers need to set priorities and ensure there is revenue to meet those priorities, not through smoke and mirrors or budget gimmicks.
  • Health care: Health care is the largest and fastest growing non-debt service portion of the budget. Medicare, more than any other federal activity, drives up annual deficits and accumulated debt, and debt service costs rise accordingly. At the same time, the broader private healthcare system for the working-age population and their dependents places a heavy strain on business and household finances.
  • Social Security: The cost of Social Security is also increasing, largely due to the aging of the population. After having strengthened the safety net for intermittent workers with interrupted professional careers, Social Security charges should be brought under control with gradual reductions in benefits for the wealthiest employees, and broader coverage of payroll tax for top earners with generous benefits that are currently not taxed.
  • Annual Credits and Reduced Fee Programs: Congress must take the appropriations process seriously. Whether the process continues annually or is extended to a two-year cycle, decision makers must commit to carefully assessing budgets and funding requests. Lawmakers must also carefully draft a budget resolution each year, using the reconciliation as originally intended, that is, to reduce the deficit.
  • Revenue: Any long-term solution to the debt crisis will require more revenue. The country’s tax policy needs fundamental reform. If income tax reform does not generate sufficient revenue, policymakers should consider additional sources consistent with sound reform principles and maintaining fiscal discipline. Social insurance payroll taxes should also provide some of the funds needed to make social security and medicare financially viable.
  • Separating and resolving the damage of the pandemic: The federal response to COVID-19 cost approximately $6.5 trillion. This part of the pandemic-related debt should be segmented and financed by long-term fixed-rate treasury bills. By taking immediate action to repay this one-time cost, policymakers will demonstrate the country’s determination to restore fiscal responsibility.

The new Brief Solutions, Coping with Fiscal Debt: A Policy Roadmapavailable here.

About CED
The Economic Development Committee (EDC) is the public policy center of The Conference Board. The nonprofit, nonpartisan, and corporate-led organization provides well-researched analysis and reasoned solutions in the interest of the nation. CED Trustees are CEOs and key executives from leading U.S. companies who bring their unique experience to address today’s pressing policy issues. Together they represent over 30 industries, over $1 trillion in revenue and over 4 million employees. www.ced.org

About The Conference Board
The Conference Board is the member-driven think tank that provides reliable information about what lies ahead. Founded in 1916, we are a nonpartisan, nonprofit entity with 501(c)(3) tax-exempt status in the United States. www.conference-board.org

SOURCE Conference Board Economic Development Committee (CED)

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