The $3.5 trillion budget plan working its way through Congress calls for record-breaking spending and tax increases. It offers trillion-dollar deficits for years to come.
Incredibly, this plan would also double our national debt to the highest level in our nation’s history, putting the United States at risk of a financial crisis. According to the Congressional Budget Office’s 2021 Long-Term Budget Outlook report, the growing public debt could “increase the risk of a financial crisis and higher inflation” and poses “significant risks to the fiscal and economic outlook of the United States.”
Under President Joe Biden’s budget plan, the public debt would nearly double, rising from $21 trillion in 2020 to $40 trillion in 2031. This would increase the debt to 117% of GDP, by far the highest level in U.S. history, higher even than the levels reached to pay for World War II. The Congressional Budget Office projects the debt will continue to rise to 202% of GDP by 2051, an unsustainable level, twice the size of the economy.
Still, the CBO’s dire warning of a financial crisis came in March of this year, before the passage of the $1.9 trillion stimulus bill, the push for the $1.2 trillion infrastructure bill, and the $3.5 trillion budget plan. Even then, the CBO was warning that our high and rising debt could “significantly affect the US economy,” leading to higher inflation and a drop in the U.S. dollar.
What’s more, the growing debt will cost taxpayers billions of dollars in interest payments to foreign debt holders every year.
According to the Congressional Research Service, foreign owners held about 33% of our public debt at the end of 2020, with Japan (17.7%) and China (15.2%) the two largest holders. Last year, taxpayers sent $137 billion in interest payments to foreign owners of U.S. debt, with the largest payments going to Japan and China. Under this budget plan, taxpayers will pay more than $2 trillion in interest to foreign powers over the next 10 years.
As the CBO warns, our record-high debt levels will have grave consequences for the economy, leading to higher inflation, slower economic growth, and a financial crisis. It will also leave future generations poorer.
Bruce Thompson was a U.S. Senate aide, assistant secretary of treasury for legislative affairs, and director of government relations for Merrill Lynch for 22 years.
