(The Center Square) – As the national debt quickly approaches $40 trillion, economists warn that skyrocketing deficits will distinctly impact Americans of all generations, including students, families and retirees.
Global thinktank The Conference Board analyzed how different levels of budget deficits will adversely impact student loan costs, mortgage rates, Social Security payments, and small business loans.
“High levels of debt require the Federal government to spend more on interest payments, leaving fewer resources available for infrastructure, education, national defense, and social programs,” the report, entitled “How the National Debt Affects All Generations of Americans,” notes.
The debt is already larger than the entire U.S. economy – the highest in history except for the years immediately following World War II – and will hit roughly 120% of GDP within the next decade if the government fails to rein in deficit spending.
If that spending continues as projected, an incoming college student in 2028 taking out an inflation-adjusted average student loan of $45,000 will ultimately owe $279,276 on a standard 10-year repayment plan.
Under an extreme interest shock scenario, similar to economic conditions in the 1980s, the student would owe $466,303 for the $45,000 loan.
For a family of four saving up to buy a home in five years, a standard 30-year fixed-rate mortgage and a 20% down payment on a $600,000 house will ultimately cost them $2,885,136. Under an extreme interest shock, that price tag jumps to $3,644,906.
Future retirees already face a grim outlook for Social Security payments, with trust fund insolvency projected to occur by 2032. That will trigger a 24% across-the-board benefit cut unless Congress sharply increases payroll taxes or cuts deficit spending by $2.7 trillion between 2032 and 2036.
“Backfilling some or all of this amount would directly increase the deficit absent additional revenue, leading to (or even accelerating) the precise dynamics present in the bad-case scenario with higher interest rates and costs for consumer loans,” the report warns.
Deficit spending at current or increased levels also spells hardship for small business owners looking for financing. An American taking out a small business loan of $100,000 in 2031 would ultimately owe $611,950. Under an extreme interest rate shock, the borrower would owe over a million dollars.
“The national debt is not just a number on the government’s balance sheet – it affects the financial decisions Americans make every day,” David Young, president of The CEO Center at The Conference Board, stated Tuesday.
“Higher debt can mean higher borrowing costs for families and businesses, fewer resources for national priorities, and greater uncertainty about programs Americans depend on in retirement.”
Yet despite continuous warning signs, congressional action on soaring federal deficits ultimately hasn’t progressed past vigorous handwaving from a small group of Republicans.
Congress sidestepped the automatic spending cuts to Medicare and other programs that are triggered by unpaid-for federal borrowing by wiping the Pay-As-You-Go (PAYGO) scorecard last November.
Most recently in March, U.S. lawmakers again dodged fiscal accountability when the U.S. House tanked a balanced budget resolution. If passed, the resolution would have capped federal spending each year at the average annual revenue of the previous three years, with exceptions for emergencies.
Young warned that if lawmakers continue to avoid taking the necessary but politically unpopular actions, the U.S.’s economic situation will only worsen.
“Policymakers have choices,” Young added, “but the longer action is delayed, the more difficult and costly those choices become.”
