The deep recession of 2007 to 2009 and rising expenses for major entitlement programs have propelled U.S. government debt to levels not seen since the end of World War II. The federal government ran an annual deficit of $779 billion in fiscal year 2018, pushing cumulative federal debt up to about $15.7 trillion, or 78 percent of GDP. From 1950 to 2008, the average level of federal debt was 40 percent of GDP. The Congressional Budget Office (CBO) projects federal debt will rise to 152 percent of GDP in 2048 under its extended baseline scenario.
This run-up in government debt will only be reversed if Congress and the president begin to cut spending or raise taxes to narrow the government's primary budget deficit, which is a measure of the government's annual fiscal position with net interest payments on cumulative debt excluded from the calculation. Net interest payments are a byproduct of the fiscal effects of the government's primary tax and spending policies. Countries that reduce their primary budget deficits also benefit from lower net interest payments because lower levels of debt translate into lower debt service obligations.
Read Full Article »