SCOTT SIMON, HOST:
The federal debt is now bigger than the entire U.S. economy. That is an ominous milestone. NPR's chief economics correspondent Scott Horsley joins us. Scott, thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good to be with you. Good morning.
SIMON: Please help us understand. What do we mean when we say the federal debt has outgrown the economy?
HORSLEY: Well, this week, the Commerce Department released its quarterly report on the size of the economy, the nation's gross domestic product. And as of March, U.S. GDP was a little north of $31 trillion, which is a big number. But the federal debt held by the public is even bigger by about $49 billion. And outside of a short period during the pandemic when GDP was really depressed, this is the first time federal debt has exceeded 100% of GDP since just after World War II.
SIMON: And that's a problem?
HORSLEY: Well, it's not an immediate problem. It's not like you go from debt that's 99% of GDP to 100%, and suddenly the walls come crashing in. But it's more like the red warning light that's been flashing for a while now is just a little bit brighter. Fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget says if this milestone gets people to pull their heads out of the sand for a moment, maybe that's a good thing.
MAYA MACGUINEAS: A hundred percent is going to make you stop for a second, at least, and think, is this really healthy for the economy? And the unequivocal answer is no.
HORSLEY: The federal debt, as a share of the economy, has more than doubled in the last two decades, and it's projected to keep growing.
SIMON: What's caused the big run-up in debt?
HORSLEY: The simple answer is the government spends considerably more money than it collects in taxes. And, you know, it's one thing to do that in the midst of a world war or a global pandemic. But last year, for example, the government ran a deficit of $1.6 trillion at a time of relative peace and prosperity. Most of that federal spending is on autopilot, and it's going to go up as more people retire and need costly healthcare. Of course, last year, Republicans passed another big tax cut. MacGuineas says mounting debt has been a bipartisan problem.
MACGUINEAS: We have two parties who are always trying to outbid each other by giving away more, both spending and tax cuts. The fiscal pander has become the default political move these days, and that's really how the debt situation is so bad.
HORSLEY: In the late 1990s, when the government briefly had a balanced budget, federal spending and taxes were each around 18, 19% of GDP. Since then, taxes have shrunk as a share of the economy, and spending has increased.
SIMON: What are the downsides of having this much government debt?
HORSLEY: Well, again, surpassing a hundred percent is not some kind of trip wire. Other countries have carried bigger debt loads relative to their economies, and it hasn't been a disaster. But it's not pain-free. To begin with, interest on the federal debt is now more than a trillion dollars a year. That's more than we pay for defense or Medicare or just about anything the government does other than Social Security. So Congress has to come up with more than a trillion dollars every year to cover old debts before it can start to fill the first pothole or invest in a new Navy ship or pick up the trash at the national parks. And when the government's borrowing that much money, it can also be more expensive for everyone else to get a loan, to buy a house or build a business. And finally, carrying this much debt means the government itself has less room to maneuver the next time the country faces a crisis like a widespread war or a deep recession.
SIMON: What would it take to put a dent in the government debt?
HORSLEY: Well, fiscal experts say we don't have to fill this hole, but we do need to stop digging, and that means taxes, as a share of the economy, need to go up, and spending needs to come down. You're not going to solve this problem just by taxing billionaires or printing more money or weeding out waste, fraud and abuse. MacGuineas says it's going to require some sacrifice from everybody.
MACGUINEAS: This is not one of those situations where you can just say, yes, let somebody else fix this problem. It took decades to get this deep in the hole in terms of fiscal policy. It's going to take all of us to help fix the situation.
HORSLEY: MacGuineas says there's no shortage of policy ideas for getting a handle on the debt. What there has been, however, is a lack of political will.
SIMON: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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