The Financial Times newspaper said that at a time when concerns are rising about the future of the American economy, presidential candidates Donald Trump and Kamala Harris remain ignoring one of the most serious challenges facing the country, which is the growing national debt.
Reports indicate that this debt, which has been threatening the foundations of economic prosperity for decades, has not been addressed properly.
According to a report issued by the Congressional Budget Office (CBO), the average federal debt held by the public reached 48.3% of GDP over the past half century, while the debt currently exceeds this rate by far.
It is expected – according to the Financial Times – that the national debt in 2025 will exceed the size of annual economic output for the first time since World War II.
In 1946, the debt-to-GDP ratio was 106.1%. The CBO expects the debt to exceed this rate in 2027, and reach 122.4% in 2034.
Reasons for the high national debt
The Budget Office reveals the reason behind this increase: government spending, which is expected to exceed tax revenues.
By 2034, federal tax revenues are expected to reach 18% of GDP, while federal spending is expected to reach 24.9% of GDP. This indicates that spending will rise at a faster rate than tax revenues.
In light of these numbers, the Financial Times confirms that the United States suffers from an overspending problem, not a revenue problem.
The details show that the three main issues affecting spending are:
- Social security
- Health insurance program (Medicare)
- and interest payments on the debt.
It is striking that spending on interest in 2024 will exceed spending on national defense, according to the newspaper.
Future challenges
Despite the tax cuts passed under former President Donald Trump in 2017, reversing those policies will not change the upward trend in government spending.
The Committee for a Responsible Federal Budget estimates that repealing the Tax Cuts Act and increasing taxes on the wealthy could reduce the debt-to-GDP ratio in 2034 by just two percentage points, from 119% to 117%.
But in the election debates between Trump and Harris, the national debt was not mentioned once, nor does it appear as part of the Republican Party’s 2024 platform, according to the newspaper.
According to estimates, Trump and Harris’ policies will add $7.5 trillion and $3.5 trillion, respectively, to the debt between 2026 and 2035.
The economic impact of increasing debt
Economists warn that increasing debt will have negative effects on wages and investments. Studies indicate that every 1% increase in the debt-to-GDP ratio leads to an increase in long-term real interest rates by 1 to 6 basis points.
The CBO report also shows that every additional dollar in the deficit reduces private investment by 33 cents.
This decline in investment reduces national capital – according to the Financial Times – and makes workers less productive, lowering their wages and reducing their participation in the labor market.
Worse still, according to the newspaper, the United States borrows to finance current consumption, not to invest in the future. This situation weakens long-term economic growth, sacrificing higher future living standards to support the spending of current retirees.
