What the rising US debt means for Americans

As the nation’s $34 trillion-plus debt remains top of mind for some on Capitol Hill, polling has shown Americans have also grown more concerned about the country’s balance sheet.

Although Washington is deeply divided over how to tackle the nation’s deficits, there has been some momentum among House Republicans for a special commission to explore ways to improve the country’s fiscal trajectory. Those efforts have fueled concerns about cuts to key programs seniors rely on, like Social Security and Medicare.

But experts warn the potential consequences of higher debt could impact all Americans.

Higher interest

As the national debt is projected to climb above $54 trillion in the next 10 years, experts have sounded alarm over rising interest rates.

“If the government is borrowing money, you’re needing to raise a lot of money, so it means I’ve got to sell a lot of bonds, that forces interest rates higher,” said Desmond Lachman, a senior fellow at the American Enterprise Institute, a conservative think tank, in an interview.

“If interest rates in general are higher, your mortgage rates are higher,” he said. The Federal Reserve has also repeatedly hiked interest rates to fight inflation.

“That’s important for young people, because they’re not in the housing market,” he added. “They’re not sitting on a house that has got a paid off mortgage fate, they are the ones who are going to have to go out and borrow money now at a very high, very high interest rate.”

In a February report, the Congressional Budget Office (CBO) projected the debt held by the public will rise significantly over the next decade, climbing from 99 percent of GDP in 2024 to 116 percent in 2034.

The nonpartisan budget scorekeeper also estimated net interest costs in 2025 would be “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.”

The job market

Experts say higher national debt could have an impact on the job market.

“The higher the debt is, the higher interest rates will be,” said David Wilcox, senior fellow at the Peterson Institute for International Economics. “Higher interest rates tend to discourage investment in new capital by businesses, and capital makes workers more productive.”

“A higher level of debt would tend to be associated with an economy that is modestly less productive,” he said, “and therefore, in kind of a mild version of a doom loop, a less productive economy can support a smaller amount of federal debt.”

Higher national debt could also have an impact on the job market if interest rates also rise, some experts say, while noting employment in areas like homebuilding and construction that can sometimes be more sensitive to interest rates.

“When interest rates go up, people’s mortgages cost more and, as a result, generally fewer houses get built,” said Joshua Gotbaum, a guest scholar in economic studies at the Brookings Institution, a left-leaning think tank, in an interview.

Gotbaum said employment also could be affected by what and how much the federal government decides to cut from spending.

“The bigger issue is suppose it cuts spending, because every dollar that comes out of the federal government is economic activity. It gets paid to somebody,” he said.

“Suppose the federal government in order to cover its debt provides fewer subsidies to farmers, which means some farmers will farm less and some are and some farms will be closed.”

Cuts to key programs

Experts also discussed the potential for further cuts to government spending in the years ahead as Congress tries to tackle the nation’s deficits.

“I think what Americans can expect to see is that over the next decade or two politicians are very likely to have to make some painful choices,” Wilcox said, including potential “adjustments” on the spending side.

Among some of the proposals lawmakers have raised to tackle the national debt is by continuing to curb spending, including pitches to further constrain annual spending beyond a budget limits deal passed last year.

Federal analysts predicted at the time that the measure, dubbed the Fiscal Responsibility Act, was projected to trim more than $1 trillion from the nation’s future deficits over the next decade.

Conservatives have pushed for tighter constraints on the process by which Congress crafts the 12 annual government funding bills in an effort to curb spending. But even lawmakers in their own party have noted a chunk of annual spending is not subject to the annual process, including funding for entitlement programs.

New reporting this week found that trust funds Social Security and Medicare face threats to solvency roughly a decade out, as Biden administration officials say a better than expected economic growth has helped push off depletion dates.

“What we will see with very high probability, for example, is the Social Security Trust Fund being exhausted sometime in the early 2030s,” Wilcox said. “The Medicare Trust Fund likewise, being exhausted.”

“So, those events will surely move the fiscal situation way out higher on the national agenda than it currently occupies.”

Taxes

Experts say Americans could also see changes on the tax side as Congress works to address the national debt.

“If the federal government doesn’t get its act together and start charging enough in taxes to cover what it wants to spend in programs, then the debt will go up,” Gotbaum said.

“If the debt goes up and the interest rate goes up, then the taxpayers at that time are going to be paying the bill,” he argued, adding, “Your parents avoided those bills, because the Congress instead of raising taxes to cover them, borrowed the money.”

While many Democrats have pushed for tax increases targeting wealthy individuals and corporations, many Republicans have strongly resisted tax hikes across the board. Republicans have instead called for steeper spending cuts, with a focus on social programs, which many Democrats, in turn, have pushed back on.

“The truth is, is that younger people are going to pay more and get less based on our current fiscal path,” said David Walker, former U.S. comptroller general, in an interview. “At the same time, they’re going to face a lot tougher competition in an increasingly interconnected and interdependent world.”