The New York Times reports:

The United States hit its record debt level at the end of 1945, after a world war and the Great Depression.

That record, in which the debt was briefly larger than the size of the entire economy, is almost certain to be broken in the next several years. Estimates from the Congressional Budget Office published in January showed that the country was on track to overtake it in 2032 — and that was before the Republicans’ large tax and spending bill was taken into account.

Under the G.O.P. megabill being considered in the House, budget experts now say, the U.S. debt would blow past the record even sooner and climb significantly higher in coming decades.

America has had periods of high debt before, but they have tended to occur during wars, recessions or other major shocks. Generally, federal deficits have been lower during periods of low unemployment. Today, there is no war or recession to easily explain the rapidly increasing pace of borrowing.

Because the government has been spending more than it collects in taxes over the past two decades, the debt has been growing. Without any changes to existing law, the Congressional Budget Office predicts the debt will rise to about 117 percent of the economy’s size by 2034, higher than the 1945 record.

The Republicans’ bill would widen the gap further by extending and expanding tax cuts and increasing military spending, partly offset by spending cuts in other areas. The Committee for a Responsible Federal Budget, a nonpartisan group that favors debt reduction, estimates that the nation’s debt could be as high as 129 percent of the economy by 2034 under those plans.

Researchers at the group calculated its debt forecasts under two scenarios based on the duration of the Republican bill’s tax cuts. Even if certain tax cuts expire as written in the bill, they estimate federal debt will still rise to 125 percent of the economy’s size.

Other budget groups, including the Center for American Progress, a liberal research group, have published projections even further into the future. One of the group’s estimates, which assumes that all of the bill’s temporary provisions are extended permanently, shows that the debt could reach about double the size of the economy by 2055, compared with 156 percent without any changes to existing law.

Elevated interest rates over the past few years have made it more costly for the government to borrow money, accelerating the debt’s upward trajectory. Moody’s, the credit rating agency, downgraded its assessment of government debt last week, specifically citing the rising debt burden as a factor. Technically, the downgrade suggests there is a higher risk the U.S. could fail to pay its debts in the future.

Over time, economists worry that governments get into trouble when their debt becomes too high because bond holders become nervous about whether they can be paid back, which raises interest rates even more. Higher interest rates can ripple through the economy. And the combination can make it harder for a nation to borrow money when it faces a major crisis, like a pandemic, a war or a recession. Natasha Sarin, the president and co-founder of the Yale Budget Lab, which has published an analysis of long-term debt stemming from the bill’s tax provisions, said the United States could be heading into risky territory. [Continue reading…]