America’s national debt has surpassed $30 trillion for the first time, according to Treasury Department data published Tuesday.
The milestone comes as debt has surged more rapidly than projected in recent years, driven in large part by a deficit-financed federal response to the coronavirus pandemic. Total public debt outstanding — $30,012,386,059,238.29 as of Monday — has risen by nearly $7 trillion since the start of 2020, and the debt as a share of the economy topped 100% in 2020, reaching levels higher than any time since World War II. The gross national debt includes $6.5 trillion the government owes to itself, called intragovernmental holdings, and $23.5 trillion owed to outside creditors, known as debt held by the public.
Yet even before the government spent some $5 trillion to support the economy and combat the novel coronavirus, some budget watchers were warning that the nation’s fiscal path was unsustainable, primarily as a result of demographic trends and structural imbalances between the tax revenue the government takes in and long-term federal obligations for programs including Medicare and Social Security.
“We’re on an unsustainable path,” Federal Reserve Chair Jerome Powell told Congress last month. “Debt is not at an unsustainable level, but the path is unsustainable — meaning it’s growing faster than the economy, meaningfully faster than the economy. We have to address that over time. We will address it over time. And the better way to do it is soon.”
Other economists say that that the debt load is manageable and that new spending is affordable given that the economy continues to grow, interest rates remain at historically low levels, interest payments as a share of the economy are well below past levels and investors continue to demonstrate strong demand for U.S. bonds, suggesting that there’s little risk of an imminent fiscal crisis. “And some economists argue that a more recent economic phenomenon — inflation — may have a silver lining in that it could chip away at the nation’s debt burden,” Alan Rappeport of The New York Times says.
Harvard Economist Kenneth Rogoff tells the Times that other economic issues are more pressing than the debt. “You would rather have no debt, of course,” Rogoff says. “But compared to other issues at the moment that’s not the principal problem.”
A rising rate environment: “It’s impossible to know how much debt is too much, and economists remain divided over how big of a problem this really is,” CNN’s Matt Egan writes. “But the latest debt milestone comes at a delicate time as borrowing costs are expected to rise.”
The Federal Reserve has signaled that it is prepared to begin raising interest rates as soon as next month as it looks to curb inflation. “With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Fed said in a statement last week after a meeting of its policy-setting committee.
Higher rates will increase the government’s borrowing costs, making it more expensive to carry the unprecedented debt load. “A larger amount of debt makes the United States’ fiscal position more vulnerable to an increase in interest rates,” the Congressional Budget Office has warned.
CBO projected last year that the federal government’s interest costs would become the fastest-growing part of the federal budget and top $5.4 trillion from 2022 through 2031. By the end of that period, interest costs would represent 12% of the federal budget — and the share would continue to rise, climbing to nearly half of all federal revenue by 2051.
Concerns about the debt could limit lawmakers’ ability or willingness to spend money on other national needs. Already, Sen. Joe Manchin (D-WV) has cited the debt in objecting to Democrats’ $2 trillion Build Back Better plan of domestic spending and environmental programs.
“The polarization of our government and, to some extent, our population, makes implementing solutions more difficult,” Michael A. Peterson, CEO of the Peter G. Peterson Foundation, which promotes deficit reduction, told CNN. “If we don’t get our fiscal house in order, all these other concerns like climate, inequality and national security will be made more difficult.” (The Fiscal Times in an editorially independent organization financed by Peterson.)
