The Stakes

Mar 1, 2012

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As the U.S. economy continues to emerge from recession, why should policymakers focus on the long-term deficit? Two reasons: deciding on action now will allow us to make changes gradually rather than having to cut spending and increase revenue drastically and suddenly, which could be necessary if we allow our fiscal situation to deteriorate to the point of crisis; and agreeing on a plan now would reduce uncertainty and restore business and consumer confidence that elected officials can work together to keep our economic and fiscal affairs in order.

Economic growth is a key part of the equation for long-term fiscal sustainability. Thus, it is essential that the President and members of Congress continue to do all that is necessary to strengthen economic growth in the near term. But growth alone will not solve our long-term fiscal imbalances. It is also important to establish a credible fiscal plan with clear benchmarks and enforcement mechanisms that can put the debt burden on a downward path over the next few decades.

Establishing a framework for long-term fiscal sustainability will narrow the gap between federal revenues and spending, and, by doing so, improve prospects for economic growth. Lower projections for federal borrowing resulting from a long-term plan will help to keep interest rates at reasonable levels as the economy recovers and make it possible to expand public and private investments in education, infrastructure, and research, all of which fuel innovation and growth. Improving confidence will spur greater private sector investment and job creation. And a healthy, growing economy will ensure that we have the resources to support a robust national security strategy.

Furthermore, with a stronger economy made possible through sensible fiscal reforms, Social Security and Medicare will be more stable. Tens of millions of Americans count on these programs to provide for them in their old age — and nearly 80 million more Americans will rely on them in coming decades. A growing economy will help to ensure that these essential programs are stable for the long run, allowing us as a nation to keep an important commitment.

Debt in Advanced Countries

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Data from Gagnon and Hinterschweiger, "The Global Outlook for Government Debt over the Next 25 Years: Implications for the Economy and Public Policy," PIIE, June 2011. Compiled by PGPF.

The International Dimension

The U.S. is not the only country facing fiscal challenges driven chiefly by an aging population. The debt-to-GDP ratio in advanced countries is projected to approach an unsustainable 200 percent of GDP by 2035, according to the Peterson Institute. Realistically speaking, a financial crisis is likely to occur well before national debts reach that level. With nations around the world trying to finance their burgeoning debts, capital is likely to become scarcer and more expensive and global financial markets more volatile.

The United States currently enjoys a privileged position within the world’s capital markets because the dollar is a global reserve currency and the U.S. political and economic system is considered an eminently safe bet. But if federal policymakers cannot hold borrowing to manageable levels, creditors’ confidence in our ability to pay back our debt could be shaken and they may demand higher interest rates to buy U.S. debt. Or, they may simply shift their investments to other countries. Such changes could come suddenly, creating sharp, painful disruptions to the U.S. economy and a steep decline in the value of the dollar.

Simply put, our future economic growth, prosperity, and national security depend on putting the nation on a fiscally sustainable path. The sooner policymakers can agree to a plan, the sooner we can reinforce the confidence of credit markets, stabilize vital social programs, and establish a foundation for investments and tax policies that contribute to long-term economic growth.

Preserving the American Dream

What is ultimately at stake is the American Dream. A future of slower economic growth, rising debt, fewer investments, and higher taxes is not what anyone wants for their children and grandchildren — or for themselves. Since our nation’s founding, we have pursued our dreams and made sacrifices so that the next generation would have opportunities to do the same.

In 2011, the Gallup Organization reported that for the first time since it began asking the question in 1983, a majority of Americans believe the next generation will be worse off than today's adults. Is that the legacy we want to leave?

National Debt Clock

See the latest numbers and learn more about the causes of our high and rising debt.

FISCAL ISSUES ILLUSTRATED

This series of infographics helps put some of today's most pressing fiscal debates in context.