The Federal Debt Hurts Americans Right Now

Many posts have discussed federal deficits and the federal debt.

Martha Gimbel at The Atlantic:

What should matter is that the consequences of this debt are not off in the future, but already here. The government’s deficits have saddled many American families with higher costs, largely from rising interest rates. The Budget Lab, the policy research center at Yale where I am the executive director, recently estimated that congressional-spending decisions since 2015 have raised Treasury yields by almost a full percentage point, which affects what American households pay to borrow. For someone taking out a 30-year mortgage at last year’s median home price, this rise in long-term interest rates has increased their borrowing costs by about $2,500 a year, or roughly $76,000 over the life of the loan. (The Budget Lab has built a tool to help users calculate their own extra mortgage costs.)

The problem is not just for Americans who are lucky enough to buy a home. The bloated government budgets and waning federal revenues of the past decade are driving up costs across the board. Compared with a world in which these fiscal-policy changes did not take place, the annual borrowing costs on a typical auto loan are now up by about $120, and by about $770 on a typical small-business loan. Credit-card borrowing rates are also hovering near record highs.

Although affordability has become a watchword for politicians who understand that rising prices are hurting American families, lawmakers seem to have forgotten that reducing federal deficits would help bring down prices. In the 1990s, Congress and the White House prioritized bringing deficits down by both cutting spending and raising revenue—moves that lowered borrowing costs for American families by about 0.6 percentage points, according to Budget Lab calculations. But few lawmakers seem to be suggesting the spending cuts and tax increases necessary to lower costs now.

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Politicians respond to electoral consequences. Right now there is nothing stopping them from doling out tax cuts and spending promises while also driving up interest rates. Voters may complain that their lives are becoming unaffordable, but hardly anyone seems to appreciate that federal deficits are partly to blame. If we want to see lawmakers actually address this problem, economists need to do a better job explaining the stakes. This means that instead of talking about the fact that our national debt could fill all 32 NFL stadiums with two tiers of construction pallets filled with $100 bills, we should be talking about how deficit spending is making it harder to pay our own bills.

Debt Matters

Many posts have discussed federal deficits and the federal debt.

Neil Irwin at Axios reports on federal debt exceeding 100% of GDP.

Catch up quick: The Commerce Department last week reported $31.9 trillion annualized GDP in Q1. That surpasses the $31.4 trillion in debt held by the public on the last day of the quarter.The U.S. debt-to-GDP ratio briefly topped 100% during the early days of the COVID-19 pandemic when economic activity collapsed. But before that, it hadn't exceeded that ratio since the aftermath of World War II.

The ratio is on track to continue rising, with the Congressional Budget Office projecting it will reach 120% in 2036.

Zoom in: Consider a family with $100,000 in debt and an annual income of $100,000. Is their debt excessive? The answer, of course, is that it depends.If the family ran up that debt due to one-time expenses that won't recur and has a low interest rate, rising income and day-to-day spending in line with what they bring in, they're probably fine.

If, on the other hand, they ran up that debt to support routine living expenses in excess of their earnings and have a high interest rate and stagnant income, it would raise serious alarm bells.

Zoom out: The U.S. government is more like the latter family. The CBO projects federal revenue in the next few years will be 17% to 18% of GDP, while expenditures will be north of 23% of GDP.That gap, of around 6% of GDP, is higher than the CBO's GDP growth projection, which would imply an ever-rising debt-to-GDP ratio.

In those projections, the federal government's interest expenses soar to new heights as a share of the economy — surpassing $1.5 trillion and 4% of GDP in 2031.

That assumes interest rates remain broadly in their current zone, with a 10-year Treasury note yielding about 4.4% — and that bond investors prove willing to continue financing an ever-growing debt at those levels.
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The bottom line: The national debt hitting 100% of GDP isn't a worry in and of itself, and it isn't some magical threshold. What is worrying are the details of how it got there, and what comes next.

Spending, Taxes, and Deficits: A Book of Charts from Brookings

Many posts have discussed federal deficits and the federal debt.

Jessica Riedl at Brookings:

Debates over federal taxes, spending, and deficits will always be contentious due to deep disagreements over fiscal priorities, ideologies, and values. Yet these debates are often further hampered by an inability to agree on even the most basic underlying budget data. Simply put, standard liberal and conservative fiscal frameworks are often defended with fallacies regarding the current and projected makeup of taxes and spending, the trends in budget deficits and debt, and the fiscal records of recent presidents.

The new 2026 version of this annual chart book once again provides a standard, non-partisan look at the trends in spending, taxes, and deficits in hope of addressing common fallacies and providing a common starting point for fiscal debates.

The 132-page chart book begins by broadly examining the rising budget deficits and national debt and then dives deeper to show the policies driving the $138 trillion in new CBO-projected deficits over the next three decades—and how drastically the picture worsens if interest rates remain elevated. Next, the chart book shows the size of the reforms needed to stabilize the debt, and how the common “easy solutions” would fail to provide sufficient savings towards that goal. Finally, it examines trends in tax revenues and tax progressivity, slays common budget myths, and offers a full accounting of the fiscal records of Presidents Bush, Obama, Trump, and Biden.

These charts—most of which rely on publicly-available data from the Congressional Budget Office, Office of Management and Budget, Census Bureau, and U.S. Treasury—nevertheless defy conventional wisdom about spending, taxes, and deficits.

Deficit and Debt 2026

Many posts have discussed federal deficits and the federal debt. Like previous efforts to reduce the deficit by cutting "waste, fraud, and abuse," DOGE was a failure.

CBO:

In CBO's projections, the federal budget deficit in fiscal year 2026 is $1.9 trillion and grows to $3.1 trillion by 2036. Relative to the size of the economy, the deficit is 5.8 percent of gross domestic product (GDP) in 2026 and grows to 6.7 percent in 2036, which is greater than the 3.8 percent deficits averaged over the past 50 years. Rising net interest costs drive much of that increase. The primary deficit, which excludes those net interest costs, totals 2.6 percent of GDP this year and stays below that level through 2036, when it totals 2.1 percent.

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 From 2026 to 2036, large and growing deficits cause debt to increase. Federal debt held by the public rises from 101 percent of GDP this year to 120 percent in 2036, surpassing its previous high of 106 percent of GDP in 1946.

 

Four Point One Trillion

 Many posts have discussed federal deficits and the federal debt.

CBO:

CBO responds to a request from Senator Merkley for information about how federal deficits and debt held by the public would be affected by Public Law 119-21, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14, and then additionally by making permanent 10 tax provisions that are temporary in that law.

CBO and the staff of the Joint Committee on Taxation (JCT) estimate that over the 2025–2034 period deficits will increase by $3.4 trillion for the legislation as enacted, excluding any macroeconomic or debt‑service effects.

CBO estimates that the additional debt-service costs under the legislation as enacted will total $718 billion over the 10-year period. That change will increase the cumulative effect on the deficit to $4.1 trillion. As a result, and net of any changes in borrowing for federal credit programs, the agency estimates that the legislation will increase debt held by the public at the end of 2034 by 9.5 percentage points relative to CBO's January 2025 baseline budgetary projections of gross domestic product (GDP). Other factors, such as administrative actions affecting tariffs and immigration, also have affected deficits and debt since January 2025 and will be reflected in CBO's next baseline.

Desmond Lachman at The National Interest:

A fundamental weakness of the US economy is that it relies on the kindness of strangers to finance its twin budget and trade deficits. Indeed, of the $29 trillion in outstanding U.S. Treasury bonds, foreigners own over $8 trillion. This makes it of paramount importance that the United States maintains investor confidence that it will not try to inflate or tax its way out from under its debt mountain. If it fails to maintain that confidence, the country could face a crisis in the bond or dollar markets

 

Blowing Up the Federal Debt

 Many posts have discussed federal deficits and the federal debt.

Sahil Kapur at NBC:

President Donald Trump’s “big, beautiful bill,” which he signed into law this month, will add $3.4 trillion to the U.S. national debt over the next decade, according to a report the nonpartisan Congressional Budget Office published Monday.

The report found that the law, which Republicans passed along party lines, will also “increase by 10 million the number of people without health insurance” by 2034.

The budget office scrutinized the final version of the bill after Republicans made a series of last-minute changes to cobble together the votes needed in the Senate; it passed 51-50. That revised version subsequently passed the House on a vote of 218-214. Trump enacted it on July 4.

The package extends Trump’s 2017 tax cuts while providing tax deductions for tips and overtime pay for the next four years. It includes hundreds of billions of dollars in new spending for the military and to carry out Trump’s mass deportation agenda. And it pays for some of that with cuts to Medicaid, SNAP benefits (which help low-income families purchase groceries) and clean energy funding.

The analysis found that the law’s net spending cuts of $1.1 trillion are outstripped by the $4.5 trillion in decreased revenue, compared with if the measure had not passed.

Deficit 2025

 Many posts have discussed federal deficits and the federal debt.

Fatima Hussein at AP:

The U.S. budget deficit has grown to more than $1.3 trillion in the first half of the 2025 fiscal year — the second highest six-month deficit on record, according to Treasury Department data released Thursday.

The deficit for October through March spans the administrations of President Joe Biden and President Donald Trump. The previous high in the four decades of recordkeeping was $1.7 trillion in the first half of fiscal year 2021, when the government was tackling the COVID-19 pandemic.

A Treasury official who spoke on the condition of anonymity to preview the data said the increased spending was in part due to a mix of expenditures, including cost of living increases to Social Security payouts, higher Medicare and Medicaid costs, increased disaster assistance to the Federal Emergency Management Agency and Defense Department spending.

Jacob Bogage at WP:

Senior tax officials are bracing for a sharp drop in revenue collected this spring, as an increasing number of individuals and businesses spurn filing their taxes or attempt to skip paying balances owed to the Internal Revenue Service, according to three people with knowledge of tax projections.

Treasury Department and IRS officials are predicting a decrease of more than 10 percent in tax receipts by the April 15 deadline compared with 2024, said the people, who spoke on the condition of anonymity to share nonpublic data. That would amount to more than $500 billion in lost federal revenue; the IRS collected $5.1 trillion last year. For context, the U.S. government spent $825 billion on the Defense Department in fiscal 2024.

“The idea of doing that in one year, it’s hard to grapple with how meaningful of a shift that represents,” said Natasha Sarin, president of the Yale Budget Lab and a senior Biden administration tax official.

Long Term Deficit and Debt

 Many posts have discussed federal deficits and the federal debt.

CBO, The Long-Term Budget Outlook: 2025 to 2055.

Debt

In CBO’s projections, federal debt held by the public, measured as a percentage of gross domestic product (GDP), increases in every year of the 2025–2055 period. By 2029, that debt climbs to 107 percent of GDP, exceeding the historical peak it reached immediately after World War II. In 2055, it reaches 156 percent of GDP and remains on track to increase thereafter. Such large and growing debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel constrained in their policy choices.

Deficits

The total federal budget deficit remains large by historical standards over the next 30 years, averaging 6.3 percent of GDP—more than one and a half times its average over the past 50 years—and reaching 7.3 percent of GDP in 2055. Those amounts are the result of rising interest costs and sustained primary deficits, which exclude net outlays for interest. Primary deficits average 2.0 percent of GDP over the 30-year period; over the past 50 years, they averaged 1.7 percent of GDP.

Outlays and Revenues

Federal outlays rise over the next 30 years, reaching 26.6 percent of GDP in 2055. They have exceeded that level only twice: during World War II and during the coronavirus pandemic. Growth in net interest costs; spending for federal health care programs, particularly Medicare; and spending for Social Security, especially over the next decade, drive that increase. Measured as a percentage of GDP, revenues increase over the next few years, largely because of the scheduled expiration of certain provisions of the 2017 tax act. Revenues generally continue to rise thereafter, reaching 19.3 percent of GDP in 2055, mainly because growth in real income (that is, income adjusted to remove the effects of changes in prices) boosts receipts from individual income taxes.

 

Interest on the Debt

 Many posts have discussed federal deficits and the federal debt.

Bruce Mehlman:

The U.S. government spent more paying interest on our national debt than on defense spending for the first time ever in 2024, and will again every year for the foreseeable future. Surely no big deal, right? In fact America’s net interest payments on our debt are the highest among OECD nations, nine times higher than Japan’s (which has both greater debt as a share of GDP and a smaller economy!) China spent 0.96% of their GDP on interest payments last year, 1/4th America’s burden. It’s probably nothing?

 

The DOGE Dodge

Americans vastly overestimate the amount of waste in the budget

Brian Riedl:

“Why aren’t you cheering Trump & DOGE? I thought you wanted spending and deficit cuts!" Because I’ve been doing this for 25 years and can’t be tricked by gimmicky nonsense. Trump’s first term added $8 trillion in enacted spending hikes and tax cuts to the deficit - half of which was unrelated to the pandemic. This time around, Trump has proposed roughly $8 trillion more in tax cuts and spending hikes over the decade. And right now, a GOP Congress is preparing to abandon most reconciliation cuts and instead add $325 billion this year in new spending. We’re headed towards $4 trillion deficits within a decade. So, no, I don’t get excited when DOGE cancels $1 billion in govt contracts. Or saves $3 billion in federal workforce reductions out of a $7,000 billion budget. Not when Trump and Congress are also preparing to add $800 billion more annually in proposed new tax cuts and spending. And no, the huge savings are not coming. Even (unrealistically) eliminating 20% of the federal workforce would save $60 billion, and overhauling federal systems to sharply reduce payment errors may save perhaps $80 billion (and is probably unlikely too). For all of DOGE’s bluster, administrative and executive reforms would at best save 1-2% of federal spending and offset only a small fraction of Trump’s red ink agenda. That leaves trying to unilaterally impound spending such as USAID—which is wildly illegal—or actually going to Congress to pare back spending the constitutional way. But Trump has already taken Social Security, Medicare, defense, veterans, border (and interest) off the table, which is 2/3 of all spending and is driving deficits. And the GOP Congress seems ready to give up on cutting the remaining one-third of spending. Want to cut spending and the deficit? How about they stop passing budget-busting bills. Don’t brag about your coupon-clipping frugality at the same time you are buying a $250,000 Ferrari. I’m not going to cheer Trump and DOGE for adding “only” $750 billion to deficits instead of $800 billion. We’re still going backwards. I’ve spent decades studying the federal budget. I know that $7 trillion(!) behemoth inside and out – where the money really goes, and where the savings opportunities lie. So I can also detect bullshitters who talk tough about trillion-dollar spending cuts without doing their homework. It’s the ones who claim most spending goes to undefined “waste,” federal salaries, immigrants, foreigners, Ukraine, or non-working welfare recipients. It’s the ones who claim we can easily balance the budget or cut $1 trillion without specifying exactly what line-items to cut. Or that we can return to 2019 spending levels for each program, which means a 20% inflationary cut, defaulting on the federal debt, and kicking off every senior who has since retired into Social Security and Medicare. It’s all hot air and empty bluster. Tough talk without following through on anything substantive. Just wait until you see the final deficit numbers in October. And this is why GOP movements to cut spending always fail. They make absurdly ambitious promises without doing their homework, understanding where the money goes, and specifying real plans to fix it. You can’t significantly cut the deficit just by cutting waste, firing bureaucrats, and defunding immigrants and foreigners. There are no easy short cuts. You have to stop cutting taxes and then address Social Security, Medicare, defense, and a lot of other popular programs. Wake me when the GOP goes there. So, no, I will not get excited about a couple billion in DOGE savings on one hand while Trump pushes Congress to add $8 trillion over the decade in tax cuts and spending with the other hand. I’m not that gullible.

Thirty-Five Trillion in Debt

Many posts have discussed federal deficits and the federal debt.

Alan Rappeport at NYT:

America’s gross national debt topped $35 trillion for the first time on Monday, a reminder of the nation’s grim fiscal predicament as legislative fights over taxes and spending initiatives loom in Washington.

The Treasury Department noted the milestone in its daily report detailing the nation’s balance sheet. The red ink is mounting in the United States more quickly than many economists had predicted as the costs of federal programs enacted in recent years have exceeded initial projections.

The leading presidential candidates, Vice President Kamala Harris and former President Donald J. Trump, have said little about the nation’s deficits on the campaign trail, suggesting that the economic problem will only worsen in the coming years. Deep differences between Republicans and Democrats on policy priorities and resistance within both parties to enacting cuts to the biggest drivers of the national debt — Social Security and Medicare — have made it difficult to reduce America’s borrowing.

The Politics of the Federal Debt

Many posts have discussed federal deficits and the federal debt.

Brian Riedl nails it at Reason:

Paradoxically, the faster government debt escalates toward an inevitable debt crisis, the less politicians and voters seem to care. In the 1980s and 1990s, more modest deficits dominated economic policy debates and prompted six major deficit reduction deals that balanced the budget from 1998 through 2001. That era is long gone. In the past eight years, President Donald Trump and then Biden enacted $12 trillion in deficit-expanding legislation even as Social Security and Medicare shortfalls drove baseline deficits higher. When even liberal economists warned politicians that the post-pandemic economy faced a modest degree of rising inflation and interest rates—and that a federal spending spree would pour gasoline on that fire—lawmakers responded by enacting the $2 trillion American Rescue Plan. When inflation and mortgage rates resultantly surged to 9.1 percent and 7.8 percent, respectively, lawmakers brazenly continued the inflationary spending spree.

Why are we no longer responding to soaring debt and its economic consequences? While there are many factors, the three most important are these: 1) We've convinced ourselves that deficits do not matter; 2) partisan politics and the collapse of lawmaking have turned deficits into a weapon to be politicized rather than a problem to be solved; and 3) few of us are willing to face the unpopular reality that this issue cannot be resolved without fundamentally reforming Social Security, Medicare, and middle-class taxes.

Interest on the Debt

Many posts have discussed federal deficits and the federal debt.

From the Committee for a Responsible Federal Budget:

In the first seven months of Fiscal Year (FY) 2024, spending on net interest has reached $514 billion, surpassing spending on both national defense ($498 billion) and Medicare ($465 billion). Overall spending has totaled $3.9 trillion thus far. Spending on interest is also more than all the money spent this year on veterans, education, and transportation combined.

Interest on the debt is currently the fastest growing part of the budget, nearly doubling from $345 billion (1.6 percent of GDP) in FY 2020 to $659 billion (2.4 percent of GDP) in 2023, and net interest is on track to reach $870 billion (3.1 percent of GDP) by the end of FY 2024. Spending on interest is now the second largest line item in the budget and is expected to remain so for the rest of the fiscal year. By 2051, interest will be the largest line item in the budget.

Rising debt will continue to put upward pressure on interest rates. Without reforms to reduce the debt and interest, interest costs will keep rising, crowd out spending on other priorities, and burden future generations.

The Fiscal Future Is Not Bright

Many posts have discussed federal deficits and the federal debt.

Mark J. Warshawsky at AEI:

Last week, the Treasury Department released, with no fanfare, the massive Financial Report (FR) of the US Government. Using an accrual accounting basis, rather than a cash basis, the FR shows a much poorer picture of the current finances of the federal government than the conventional budget. Even its uniformly optimistic assumptions project a clearly unsustainable future for the federal government’s budget under current policy.

The budget deficit under the conventional cash-basis terms increased from $1.4 trillion in 2022 to $1.7 trillion in 2023, or about 6.2 percent of GDP, mainly because of some weakness in tax revenues owing to a lower stock market in the prior year and the drying up of transfers from the Federal Reserve owing to higher interest rates. The alternative measure presented in the FR of the net call added this year by the federal government on the future resources of its citizens is the net operating cost, which includes accruals of retirement, disability, and health benefits to federal employees and veterans. At $3.4 trillion in 2023, or an eighth of GDP, it was double the cash basis deficit. In 2019, the net operating cost of the federal government was “only” $1.4 trillion.

Another way the FR presents the current financial status of the federal government is the net position— assets minus liabilities. In 2023, assets of $5.4 trillion include cash, inventory, loans receivable, as well as buildings, equipment, and general-purpose land. Liabilities of $42.9 trillion include federal debt held by the public of $26.3 trillion, or about 97 percent of GDP, and $14.3 trillion owed as an obligation for federal employee and veterans’ benefits payable. The net position of the federal government was thus negative $37.5 trillion in 2023, compared to $34.1 trillion in 2022. The worsening occurred mainly because debt outstanding increased by $2 trillion during the year.

The FR also does projections over the next 75 years of the conventional federal government budget measures of cash deficits and debt outstanding. It characterizes the situation as “unsustainable.” More specifically, it projects that the deficit will increase to 5.9 percent of GDP in 2028, 14.1 percent in 2047, 21.1 percent in 2070, and 29.1 percent by 2097. The causes are a growing primary deficit due to increased spending for Social Security and Medicare on the retiring baby boom generation, peaking at 4.4 percent of GDP in 2043, but mainly from the rapidly and continually growing torrent of interest spending as debt outstanding growing faster than the economy must be serviced. Indeed, debt as a share of GDP is projected to rise to 200 percent by 2047 and reach 531 percent by 2098.

Debt and Interest Payments

Many posts have discussed federal deficits and the federal debt.

CBO, The Budget and Economic Outlook: 2024 to 2034

Debt held by the public rises each year in relation to the size of the economy, reaching 116 percent of GDP in 2034—an amount greater than at any point in the nation’s history. From 2024 to 2034, increases in mandatory spending and interest costs outpace declines in discretionary spending and growth in revenues and the economy, driving up debt. That trend persists, pushing federal debt to 172 percent of GDP in 2054.

 

In CBO’s projections, rising spending for Social Security and Medicare boosts mandatory outlays. Discretionary spending as a share of GDP falls to historic lows. And mounting debt and higher interest rates cause net outlays for interest to increase. Starting next year, net interest costs are greater in relation to GDP than at any point since at least 1940, the first year for which the Office of Management and Budget reports such data.

 

Debt 2023: $33T

Alan Rappeport at NYT:

America’s gross national debt exceeded $33 trillion for the first time on Monday, providing a stark reminder of the country’s shaky fiscal trajectory at a moment when Washington faces the prospect of a government shutdown this month amid another fight over federal spending.

The Treasury Department noted the milestone in its daily report detailing the nation’s balance sheet. It came as Congress appeared to be faltering in its efforts to fund the government ahead of a Sept. 30 deadline. Unless Congress can pass a dozen appropriations bills or agree to a short-term extension of federal funding at existing levels, the United States will face its first government shutdown since 2019.

Over the weekend, House Republicans considered a short-term proposal that would slash spending for most federal agencies and resurrect tough Trump-era border initiatives to extend funding through the end of October. But the plan had little hope of breaking the impasse on Capitol Hill, with Republicans still divided on their demands and Democrats unlikely to support whatever compromise they reach among themselves.

The debate over the debt has grown louder this year, punctuated by an extended standoff over raising the nation’s borrowing cap.

That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation’s social safety net programs keeps growing.

College, Debt, and Wealth

Paul Tough at NYT:

In the fall of 2009, 70 percent of that year’s crop of high school graduates did in fact go straight to college. That was the highest percentage ever, and the collegegoing rate stayed near that elevated level for the next few years. The motivation of these students was largely financial. The 2008 recession devastated many of the industries that for decades provided good jobs for less-educated workers, and a college degree had become a particularly valuable commodity in the American labor market. The typical American with a bachelor’s degree (and no further credential) was earning about two-thirds more than the typical high school grad, a financial advantage about twice as large as the one a college degree produced a generation earlier. College seemed like a reliable runway to a life of comfort and affluence.

A decade later, Americans’ feelings about higher education have turned sharply negative. The percentage of young adults who said that a college degree is very important fell to 41 percent from 74 percent. Only about a third of Americans now say they have a lot of confidence in higher education. Among young Americans in Generation Z, 45 percent say that a high school diploma is all you need today to “ensure financial security.” And in contrast to the college-focused parents of a decade ago, now almost half of American parents say they’d prefer that their children not enroll in a four-year college.

He writes that the opinion has some basis in fact.  Younger college graduates do not have much of a wealth advantage over young non-college adults.

 Millennials with college degrees are earning a good bit more than those without, but they aren’t accumulating any more wealth. How can that be?

Lowell Ricketts told me he had a pretty good idea of the cause, even though the group’s data couldn’t be conclusive on this point. The likely culprit, he said, was cost: the rising expense of college and the student debt that often goes along with it. Carrying debt obviously diminishes your net worth through simple subtraction, but it can also prevent you from taking important wealth-generating steps as a young adult, like buying a house or starting a small business. And even if you (or your parents) were able to pay your tuition without loans, the savings you used are gone when you graduate, and thus are no longer available to serve as a down payment on a starter home or the beginning of a nest egg for retirement.

A few decades ago, tuition costs were manageable for many Americans. But since 1992, the sticker price has almost doubled for four-year private colleges and more than doubled for four-year public colleges, even after adjusting for inflation. Today the average total cost of attending a private college, including living expenses, is about $58,000 a year. After financial aid, the average net price for private-college students is about $33,000 a year; at public institutions, it is about $19,000. Those averages conceal a great deal of variation, however; at the University of Michigan (a public university), tuition, fees and expenses for out-of-state juniors and seniors total more than $80,000 a year.

Deficit and Debt 2023

Many posts have discussed federal deficits and the federal debt.

 From CBO:

Each year, the Congressional Budget Office publishes a report presenting its projections of what the federal budget and the economy would look like over the next 30 years if current laws generally remained unchanged. The long-term budget projections typically follow CBO’s 10-year baseline budget projections and then extend most of the concepts underlying them for an additional 20 years. This year, the long-term projections are based on CBO’s May 2023 baseline projections but also reflect the estimated budgetary effects of the Fiscal Responsibility Act of 2023 (Public Law 118-5), which was enacted on June 3, 2023.


In CBO’s projections, the deficit equals 5.8 percent of gross domestic product (GDP) in 2023, declines to 5.0 percent by 2027, and then grows in every year, reaching 10.0 percent of GDP in 2053. Over the past century, that level has been exceeded only during World War II and the coronavirus pandemic. The increase in the total deficit results from faster growth in spending than in revenues. The primary deficit, which excludes interest costs, equals 3.3 percent of GDP in both 2023 and 2053, but the total deficit is boosted by rising interest costs.


By the end of 2023, federal debt held by the public equals 98 percent of GDP. Debt then rises in relation to GDP: It surpasses its historical high in 2029, when it reaches 107 percent of GDP, and climbs to 181 percent of GDP by 2053. Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel more constrained in their policy choices. 

Federal debt as percentage of GDP 

Debt Limit Warning

 From CBO:

The debt limit—commonly called the debt ceiling—is the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies. The amount is set by law and has been increased or suspended over the years to allow for the additional borrowing needed to finance the government’s operations. On December 16, 2021, lawmakers raised the debt limit by $2.5 trillion to a total of $31.4 trillion.1 On January 19, 2023, that limit was reached, and the Treasury announced a “debt issuance suspension period” and began using well-established “extraordinary measures” to borrow additional funds without breaching the debt ceiling.

The Congressional Budget Office projects that if the debt limit remains unchanged, there is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations. The extent to which the Treasury will be able to fund the government’s ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June. That uncertainty exists because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO’s projections.

If the debt limit is not raised or suspended before the Treasury’s cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both.2 If the Treasury’s cash and extraordinary measures are sufficient to finance the government until June 15, expected quarterly tax receipts and additional extraordinary measures will probably allow the government to continue financing operations through at least the end of July.

Consquences of Default

Written Testimony of Mark Zandi Chief Economist of Moody’s Analytics, U.S. Senate Committee on Banking, Housing, and Urban Affairs’ Subcommittee on Economic Policy ““The Federal Debt Limit and its Economic and Financial Consequences” March 7, 2023

If lawmakers are unable to resolve the debt limit in time and the Treasury begins paying its bills late and defaults, financial markets would be roiled. A TARP moment seems likely, hearkening back to that dark day in autumn 2008 when Congress initially failed to pass the Troubled Asset Relief Program bailout of the banking system, and the stock market and other financial markets cratered. A similar crisis, characterized by spiking interest rates and plunging equity prices, would be ignited. Short-term funding markets, which are essential to the flow of credit that helps finance the economy’s day-to-day activities, likely would shut down as well.

It is unimaginable that lawmakers would allow things to get to this point, but as the TARP experience highlights, they have done the unimaginable before. Yet, if that experience is a guide, lawmakers would reverse course within a few days and resolve the debt limit impasse to allow the Treasury to resume issuing debt again and pay its bills. Much damage will have already been done, and although markets would right themselves, it would be too late for the already fragile economy, and a recession would ensue.

However, if lawmakers do not reverse course quickly and the impasse drags on for even a few weeks the hit to the economy would be cataclysmic. Most immediately, the federal government would have to slash its spending. Say if the debt limit was breached on October 1 and dragged on all month, the Treasury would have no choice but to cut government spending by an estimated $125 billion. And if there is no agreement in November, another close to $200 billion in spending would need to be cut. The hit to the economy as these government spending cuts cascade through the economy would be overwhelming.

Adding to the economic turmoil would be the loss of consumer, business, and investor confidence. Political brinkmanship over the operations of the federal government has been frightening for Americans to watch. In both the 2011 and 2013 debt limit episodes, households were closely attuned to the political hardball being played in Washington and consumer sentiment slumped. The brinkmanship is also unnerving for businesses, who will pullback on investment and hiring, and financial institutions, who will quickly turn more circumspect about extending credit to households and businesses.

The timing couldn’t be worse for the economy as even before the specter of a debt limit breach many CEOs and economists believe a recession is likely this year. With the Federal Reserve ramping up interest rates in an effort to quell wage and price pressures, avoiding a recession would be difficult even if nothing else went wrong. Most leading indicators of recession, including the prescient policy yield curve – the difference between 10-year Treasury yields and the federal fund rate – point to recession beginning later this year at about the time lawmakers will be doing battle over the limit.

Based on simulations of the Moody’s Analytics model of the U.S. and global economies, the economic downturn that would ensue would be comparable to that suffered during the global financial crisis. That means real GDP would decline beginning late this year and through much of 2024, falling over 4% peak to trough, costing the economy more than 7 million jobs, and pushing the unemployment rate to over 8%. Stock prices would fall by almost a fifth at the worst of the selloff, wiping out $10 trillion 4 in household wealth. Treasury yields, mortgage rates, and other consumer and corporate borrowing rates would spike, at least until the debt limit is resolved and Treasury payments resume. Even then, rates would not fall back to where they were previously. And the economy’s long-term growth prospects will be materially diminished. A decade from now, real GDP is almost one percentage point lower than if there had been a clean debt limit increase, there are 900,000 fewer jobs, and the full-employment unemployment rate is 0.1% percentage points higher.