Consider this – over the past year, the national debt increased by $2.5 trillion, which amounts to an eye-popping $78,401 every second. U.S. federal borrowing for Fiscal Year 2023 neared 9% of the entire economy.
These numbers should terrify every American.
As vice chairman of the Joint Economic Committee, I feel compelled to address the alarming growth of our national debt. If we fail to confront this issue head-on, future generations will face the crushing prospect of a combined top marginal tax rate of 100% just to pay for existing government services.
We have an opportunity to come together to save our Republic by forming a bipartisan debt commission focused on finding innovative solutions to address this perilous threat and ensure our children and grandchildren have the same opportunities that we had. I commend Speaker Mike Johnson, R-La., for pledging to establish a debt commission in one of his first acts since his election.
AMERICA'S DEBT IS ECONOMIC INSANITY. IT'S TIME TO SAVE THE AMERICAN DREAM
Our primary fiscal challenges stem from demographics. The number of workers-to-retirees ratio has fallen from over 5-to-1 to under 3-to-1. At the same time, 1-in-9 prime age men are not showing up in the workforce.
These trends put an immense strain on Social Security and Medicare, programs that American retirees rightfully rely upon. Simply put, we must fulfill our promises to them. At the same time, it is morally indefensible to ask Americans to incur a massive tax increase to keep these programs afloat.
So instead of focusing on the question of who should pay, I believe we should focus on why health care costs have grown so rapidly.
Consider obesity, a key driver of health care spending that fuels a multitude of conditions from diabetes to heart disease. The 2023 Joint Economic Report put a price tag of $4.1 trillion on the cost of untreated obesity to taxpayers over the next decade.
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There is hope in the emerging role of medications targeting severe obesity and its complications. By ensuring access to effective treatments, we can tackle the underlying causes of these health issues, easing the financial pressures on federal health care spending.
Investing in research and development is vital for continued medical breakthroughs that enhance quality of life, reduce costs and improve outcomes.
Yet, even with a forward-looking approach to health care, we cannot disregard the imminent fiscal challenges facing Social Security and Medicare. Without legislative intervention, these programs face automatic, draconian cuts that no American wants.
In just a decade, the Social Security Trust Fund will run out of money. When that happens, federal law mandates an automatic 25% cut in Social Security benefits along with a reduction in Medicare spending.
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It is incumbent upon us, as a nation, to find a bipartisan solution that solidifies their financial stability.
Another pressing concern is the historically low liquidity in the U.S. Treasury market. As the country prepares to issue $1.8 trillion in new debt in Fiscal Year 2024, we must recognize the risks posed by this illiquidity.
A slight drop in demand for U.S. debt can cause a significant increase in interest rates, as evidenced by the yield on the 10-year Treasury currently standing at 4.6%—nearly a full percentage point higher than the Congressional Budget Office’s projection at the year’s outset.
Escalating interest rates have the potential to set off a perilous cycle of slower economic growth and higher federal budget deficits, which, taken together will exacerbate our debt crisis.
THE FUSE ON AMERICA'S DEBT BOMB JUST GOT SHORTER
We must consider innovative approaches to financing our debt while addressing liquidity.
One approach is for Treasury to issue perpetuities, as suggested by Hoover Institution economist John Cochrane. These instruments would be both highly liquid and lock in the government's long-term financing costs, providing stability and predictability to the market.
The Federal Reserve could also improve Treasury market liquidity by adopting a rules-based monetary policy, thereby reducing interest rate volatility.
The dramatic rise in America's national debt is a crisis that can no longer be ignored. It is a challenge that threatens our future prosperity, and one that Congress must rise to before it’s too late.
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By forming a bipartisan debt commission, we have a unique opportunity to come together and tackle this issue directly. It doesn’t matter what party one belongs to, we should all want a healthier population, strong and secure social safety net programs, and a strong and flourishing economy.
Our time to act is now.
