Will the U.S. Ever Pay Off Its Debt? (2024)

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The article discusses the challenges the United States faces in paying down its national debt, which surpassed $31 trillion on October 4, 2022. It highlights the historical context of the U.S. debt, reaching milestones over the years, and explores the factors preventing effective debt reduction.

One crucial aspect emphasized in the article is the debt-to-GDP ratio, a metric often used to assess a nation's fiscal health. The U.S. debt-to-GDP ratio reached 125% at the end of the second quarter of 2021, surpassing the World Bank's suggested tipping point of 77%. Over $22 trillion of the national debt constitutes public debt, subject to a limit set by Congress, which was increased to nearly $31.4 trillion in December 2021.

The article identifies several reasons why the U.S. struggles to pay down its debt. Economic growth historically outpacing debt, the political reluctance to cut spending, and the unpopularity of raising taxes are key factors. The article cites historical instances, such as President George H.W. Bush's tax increases, to illustrate the challenges associated with tax policy changes.

Moreover, the article provides four potential ways the U.S. could reduce its national debt:

1. Cut Spending: The bipartisan Simpson-Bowles report from 2010 is mentioned as an example of a plan that suggested a mix of spending cuts and tax reform to balance the budget.

2. Raise Taxes: The article discusses the delicate balance of raising taxes to generate revenue for debt reduction without adversely impacting the economy, as explained by the concept of the "Laffer Curve."

3. Grow the Economy Faster: Increasing GDP is proposed as a means to generate additional revenue for debt reduction and reduce the debt-to-GDP ratio. However, it acknowledges the challenge of finding consensus on how to achieve economic growth.

4. Shift Spending: The article suggests redirecting spending from defense to job-creation areas like infrastructure and education. It cites studies indicating that such a shift could be more effective in creating jobs and boosting GDP.

In addition, the article addresses frequently asked questions, providing information on the U.S. debt, its ownership, and the debt limit.

This comprehensive analysis draws on a range of reliable sources, including Treasury data, reports from reputable institutions like the World Bank and the Political Economy Research Institute, and legislative documents from Congress. The inclusion of milestones in U.S. debt history further strengthens the historical context.