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Saturday, May 7, 2022

Debt: Pay Now or Pay More Later

CBO analyzes the effects of waiting to stabilize the federal debt.
  • Regardless of when the process was begun, stabilizing federal debt as a percentage of GDP would require that income tax receipts or benefit payments change substantially from their currently projected path.
  • The longer policymakers waited to implement a policy change, the more debt would grow in relation to GDP, and the greater the policy changes needed to stabilize it would be.
  • If the option of increasing income tax rates was chosen, the effects of delaying implementation would be greater than they would be under the option of cutting benefits: Increases in interest costs would be larger, GDP and household consumption would be lower, and debt as a percentage of GDP would be higher in the long run.
  • Under either option, the negative effects of delaying the implementation of policy changes on people’s consumption and labor supply would be disproportionately borne by younger people and lower-income people.