The national debt is no longer a problem that can be ignored. According to the Treasury department, the total public debt crossed the $22 trillion mark on Monday, with some $30 billion in debt added this month alone. When President Donald Trump took office, debt stood just over $19.9 trillion.
Trump had promised to eliminate national debt during his presidency, a pledge he dialed back to “reducing” a chunk. While the national debt took a temporary dip to $19.8 trillion thanks to the debt ceiling, Trump’s decision to raise the debt ceiling in the fall of 2017 caused the debt to hit $20 trillion. Last year, he suspended it until March 2019. And the debt has been skyrocketing since.
Trump isn’t the first president to preside over an ever-increasing national debt. Under President Barack Obama, national debt increased from $11.1 trillion to $19.85 trillion. (It’s important to note here that national debt started to increase right before Obama took office; and increasing national debt was a critical part of improving the economy amid a recession.) Obama saw the annual deficit decline during his presidency, a trend that ended when Trump took office. President George W. Bush presided over a debt increase from $5.77 trillion to $11.1 trillion.
More than halfway through his presidency, Trump has seen the national debt increase at the fastest rate since 2012. The annual deficit is projected to rise 15.1% this year from $779 billion in 2018. By 2022, it will hit $1 trillion, according to the Congressional Budget Office (CBO).
But with so much talk about the need to reduce the country’s debt, why has it continued to balloon?
There are a few reasons. The most recent can be attributed to the Tax Cuts and Jobs Act (TCJA). According to estimates by the CBO, TCJA will add $1.9 trillion to the national debt. Congress also increased spending on the military and domestic programs in a spending bill that topped $1.3 trillion dollars. But that isn’t all. An aging population has increased spending on healthcare, while retiring Baby Boomers put a strain on Social Security.
The national debt has become a runaway train that can be easy for the average American citizen to ignore. But the expanding national debt will impact everyone.
Rising national debt hurts the economy, in large part thanks to interest that must be paid on the debt.
According to the most recent CBO economic outlook, interest on the national debt is projected to hit $383 billion this year, an 18% increase from last year. By 2029, the United States will have to pay $928 billion in interest alone.
Outlining the risks
The CBO highlights all the consequences of rising debt. As more money is funneled towards the increasing national debt interest, federal spending reduces, meaning less money spent on infrastructure, education, research and development. But that isn’t all. CBO points to an increased likelihood of a fiscal crisis — a crisis that the United States wouldn’t be able to respond to as easily.
“Lawmakers would have less flexibility than otherwise to use tax and spending policies to respond to unexpected challenges,” says the CBO report. “Specifically, the risk would rise of investors’ being unwilling to finance the government’s borrowing unless they were compensated with very high interest rates. If that occurred, interest rates on federal debt would rise suddenly and sharply relative to rates of return on other assets.”
Families would also take a more direct financial hit in addition to increased interest rates on loans and mortgages. The CBO estimates that with current projections, the national debt will reduce a family’s income by $16,000 by 2048.
While the U.S. isn’t the only country with high debt levels, it is the only advanced economy that is expected to increase its debt to GDP ratio by 2023, according to the IMF. Currently, that ratio sits at 78%, but the CBO projects that it will hit 93% by 2029 — its highest level since just after World War II.
Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.