Aside from plans to spend the next trillion or two, America’s political leaders aren’t particularly interested in discussing federal debt. It’s easy to see why. In 2020, the total US deficit was $ 3.1 trillion. In other words, the federal government has exceeded our revenues by almost 15% of our country’s annual economic output. When added to America’s existing debt, we are north of the $ 28 trillion that we owe either to programs like Social Security or to public debt holders.
The last time America carried such a debt as a percentage of gross domestic product (GDP), we were fighting the Nazis.
In 1946, the United States spent a record 106.1% of GDP. As of 2019, this expenditure as a percentage of GDP was 79.2%. The COVID-19 pandemic has accelerated the level of debt to 100% of GDP in 2020.
Think about that number for a second. We carry a debt equal to the total value of goods and services produced in America in a year. It’s even more troubling because the United States has the highest nominal GDP in the world.
A 2010 World Bank study found that a sustained debt-to-GDP ratio of more than 77% was a major detriment to economic growth. America has exceeded those numbers, and neither Democrats nor Republicans seem concerned about fixing the problem.
We need to cut spending, raise taxes, or agree to a combination of the two if we are to end our series of massive deficits. In order to pay off our debt, we actually have to go further and start generating surpluses. It won’t be fun. Our debt is an uncomfortable math problem that needs leaders ready to solve it rather than blaming it solely on spending habits or tax cuts on the other side. We clearly haven’t found them yet.