The federal debt is already too high, Office of Management and Budget director Mick Mulvaney testified Tuesday, and is set to head into a “danger zone” in the years ahead.
“We have too much now, I think,” Mulvaney said during a Senate Budget Committee hearing on the White House fiscal year 2019 budget that he unveiled Monday.
He added that, based on academic studies, he believes a federal debt of about 80 percent of gross domestic product is the “danger zone.”
Today, federal debt held by the public is about 75 percent of GDP. Mulvaney’s budget projects the debt to fly into the danger zone, reaching about 82 percent of GDP within the next three years, then declining toward 73 percent over the rest of the decade.
Those projections, though, assume Congress will implement major domestic spending cuts that are unlikely to materialize.
For his part, Mulvaney said he would like to see debt closer to 60 percent of GDP. He also added he’d like to see federal revenues growing faster than spending in order to shrink annual deficits.
There is an academic basis for the claiming that debt above 80 percent of GDP is harmful. A 2013 paper from several prominent economists found just that. A famous 2010 study from the economists Carmen Reinhart and Kenneth Rogoff found that economic growth tends to slow after government debt hits 90 percent of GDP.
Those claims were the topic of heated debate when they were presented as a reason for cutting spending during the Obama years.
And in recent years, the cost of servicing the federal debt has remained low even as the debt has mounted, thanks to low interest rates.