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The U.S. debt-to-GDP ratio has nearly grown to the Group of 7 (G7) average, a dramatic increase from 2000 when it was lower than most other G7 countries, according to a new progress report and scorecard from the Council on Foreign Relations Renewing America initiative. At its current rate, the U.S. debt-to-GDP ratio will be higher than all G7 countries except Japan by 2040.
While other large wealthy countries have been cutting their entitlement programs, the United States has left Medicare and Social Security mostly untouched. Recent U.S. budget cuts have instead focused on discretionary spending, which goes toward areas such as education, infrastructure, and research and development—all of which constitute investments in future economic growth.
"By 2040, public debt is projected to top 110 percent, equal to the highest levels reached during the Second World War," Renewing America Associate Director Rebecca Strauss writes. "And absent any policy changes it will likely keep climbing afterward into uncharted territory for the United States."
Americans will have to make difficult choices to get the public debt load under control. Sequestration, which took effect in 2013, only affected government spending projected to decline as a share of GDP. Meanwhile, U.S. policymakers left cutting entitlements or increasing tax revenues largely off the table, despite the fact that entitlements will account for nearly all new federal spending in the future.
"Just to slow debt growth to the rate of GDP growth (or a steady debt-to-GDP ratio) from today through 2040, changes to current policy would have to be dramatic: cut entitlements by 10 percent, cut discretionary spending by 23 percent, increase tax revenue by 6 percent, or some combination of the three," Strauss notes. "Adjustments to actually lower the debt-to-GDP ratio would be even more painful."
Read Strauss’s op-ed on the report’s findings on Qz.com.
Read the Renewing America report and scorecard at cfr.org/balanceowed.
This is the fifth progress report and scorecard from CFR’s Renewing America initiative. Previous reports and scorecards have evaluated transportation infrastructure, federal education policy, trade, and corporate tax.
This scorecard is part of CFR’s Renewing America initiative, which generates innovative policy recommendations on revitalizing the U.S. economy and replenishing the sources of American power abroad. Scorecards provide analysis and infographics assessing policy developments and U.S. performance in such areas as infrastructure, education, international trade, and government deficits. The initiative is supported in part by a generous grant from the Bernard and Irene Schwartz Foundation.