How Much Public Debt Is Too Much?

The public debt is, in total, about 140% of GDP

The federal government has been on a two-year spending spree. Last year, it spent $3 trillion more than it collected in revenue. This year it will spend another $3 trillion more than its revenue. This adds to the public debt, which will hit $30 trillion by year-end. Is that a problem?

The Senate just passed an infrastructure bill that will spend another $1 trillion, which will be added to the public debt. Another “budget reconciliation” bill for at least $3.5 trillion just passed the Senate, and the House will surely approve it. That will add at least $3.5 trillion more to the public debt.

The $3.5 trillion number will probably end up being closer to $5.5 trillion because some of the programs in the bill will only last a few years. The reality is that once an entitlement program is implemented it is nearly impossible to reverse, meaning those supposedly short-term programs will end up being long-term programs. That cost of the bill is really $5.5 trillion, not $3.5 trillion.

This large amount of debt is a serious problem for the country. Even though interest rates are near zero, the interest expense on the debt will be about $400 billion this year. That’s about 10% of government non-COVID-related spending. This figure will climb rapidly.