Increasing National Debt Could Cut Americans’ Income Growth, Report Finds

Banknotes and coins in front of the national flag of the USA

A new analysis warns that unless the national debt is stabilized, its rapid increase will slow the increase in earnings of American families in the next decades.

The impartial Congressional Budget Office (CBO) identified that, in the long run, growing national debt would reduce economic growth and increase family income in the United States. It considered two possible outcomes: one in which the national debt remained unchanged at 99% of GDP, the baseline under present legislation, and another in which the debt increased at a faster rate.

According to the CBO, the average income of Gross National Product (GNP) per individual is roughly $84,400 this year. If the national debt remains steady at 99% of GDP, the average income would increase by more than $44,000, reaching $128,600 in FY 2054 after accounting for inflation. 

Public debt is projected to reach 166% of GDP by 2054, resulting in a 12% slowing in income growth to $123,200 per person, according to the CBO’s present-day baseline. Increased expenditures and decreased tax collection due to tax cuts may push the national debt up to 294% of GDP in an extra debt scenario, which would result in a one-third slowdown in income growth to $114,100.

According to Marc Goldwein, senior vice president and director of policy at CRFB, the CBO predicts that barring further rises in the national debt, annual income per capita would increase by 1.5% above inflation if measures are implemented to reduce government expenditure and raise taxes. But if such adjustments aren’t made, its annual growth rate will be a meager 0.8% to 0.9% at most.

Interest rates increase in response to rising government debt, which puts more pressure on already-strapped family budgets when income growth slows, as Goldwein points out.

Aside from slowing economic development and reducing income growth, the massive level of national debt also causes interest rates to rise. Although your salaries are increasing more slowly, the cost of your mortgage and auto loans will go up, and the federal government will have to cut spending on everything else to pay for interest.

According to Goldwein, policymakers should prioritize stabilizing the country’s long-term budgetary picture over addressing immediate political concerns.