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The National Debt is on Pace to Destroy the Federal Budget

Here is a breakdown of how we spend the Federal Budget ($4.5 trillion circa 2020). This budget amounts to around 21.6% of our national GDP.

Entitlements (~57%)

· Social Security: $1 trillion

· Medicate, Medicaid, CHIP, and marketplace subsidies: $1 trillion

· Other safety net programs: $361 billion

Defense (~17%)

· Defense: $697 billion

· Foreign aid: $35 billion

Interest on the National Debt (8%..for now)

· Interest on the national debt: $375 billion

Pensions (8%)

· Pensions: $375 billion

Domestic Investment (4%)

· Infrastructure: $85 billion

· Education: $85 billion

Science/Exploration (2%)

· Scientific research: $85 billion

· NASA: $25 billion

Other (4%)

And here are the projections for interest on the national debt as a share of federal budget, if the budget were kept constant at 21.6% of GDP in the future.

2020: 8%

2030: 16%

2040: 23%

2050: 30%

2060: 48%

2070: 65%

What will get squeezed because of the growing national debt? Our military? Our entitlement programs? The most likely answer is none of them. Rather, we will increase the federal budgets as a percentage of our GDP, all without increasing entitlement spending, but across-the-board higher taxes and lower domestic growth.

The good news is the federal budget will only grow to around 34% of GDP by 2070 under these scenarios. That doesn't at face value seem like a huge leap. The bad news is that increasing the federal budget from 22% of GDP to 34% of GDP will radically shrink the private economy and slow any prospects toward economic growth. With the private economy shrunk from 78% of GDP to 66% of GDP, it's likely we'd see tax rates a little more than double to meet the demands of the increasingly thirsty government coffers. Double your taxes and retain your current standard of living? Doubtful.

It goes without saying that the national debt poses a critical threat to the US's ability to continue to grow our economy and compete internationally.


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