Last week, I shared with you my disappointment related to the possible threat to the Federal Reserve’s independence by President Trump. In particular, I expressed how limitations on the Fed’s independence could negatively impact our nation’s economy and each of us. Fortunately, this week, I have some better news.
Earlier this month, a bipartisan resolution (House Res. 981) was introduced to the House of Representatives, which set a goal of reducing the annual federal deficit to 3% of GDP (Gross Domestic Product…the primary measure of the size of our national economy). As a frame of reference, for each of the last three years, the deficit has ranged from 5.9% to 6.3% of GDP, larger than any year in the 1930’s, the decade of the Great Depression. Each year’s deficit adds to our country’s total debt. From the mid-1960’s to 2008, our total federal debt ranged between 30% and 65% of GDP. Since the Financial Crisis of 2008, our total federal debt has risen to approximately $38 Trillion, approximately 120% of GDP. While the House Resolution is very early in the legislative process, it represents a realistic approach to attacking our country’s large annual deficits and significant debt level, and it has bipartisan support.
Before we go any further discussing the value of this legislation, we should first discuss the impact of the growing federal debt, which has approximately quadrupled since the Financial Crisis of 2008. The implications of the growing debt are staggering. First, the interest costs on that debt are growing rapidly. Interest costs were almost $900 Billion in 2024, more than the cost of any federal program other than Social Security. Therefore, as interest costs grow (projected to rise to $1.8 Trillion by 2035), we will have less to invest in our future, such that important investments, such as education, research and development, and infrastructure, are at risk. This will clearly impact all of us, but it does not end there.
High levels of debt tend to “crowd out” more productive private investment in favor of government bonds, slowing economic growth. This rising debt will also likely lead to increases in interest rates and inflation, while eroding confidence in the U.S. dollar. The combination of slower growth and higher inflation would harm the economy and families across the country. These debt levels also put the country at a greater risk of a fiscal crisis, as there is much less flexibility to deal with unexpected events, a major recession, or a health crisis. Clearly, these debt levels also put entitlement programs like Social Security and Medicare at risk.
Therefore, there is significant motivation to get our country’s fiscal house in order. A sound fiscal foundation will lead to economic growth. Getting our debt under control will provide the United States and its citizens with more access to capital, more resources for investment (both private and public), improved business and consumer confidence, and stronger, more viable entitlement programs.
All of the above provides you with significant evidence on why you should care about our current level of federal debt and its continued growth through increasing annual deficits. A great first step for all of us would be to support House Resolution 981, brought forward by Reps. Smucker (R-Pennsylvania), Peters (D-California), Huizenga (R-Michigan), and Quigley (D-Illinois). While a balanced budget would be even better, these Congressmen are putting us on a more realistic path of fiscal sanity, which will allow our country to both survive and thrive. Another piece of good news is that Treasury Secretary Scott Bessent also supports the annual 3% deficit to GDP ratio as part of his “3-3” plan, which would stabilize the debt to GDP ratio at 100%.
While the House Resolution goal seems reasonable, reaching it will not be that simple. As I have addressed in previous columns, Congress will need to look at reforming mandatory entitlement spending, in particular, Social Security. Since mandatory entitlements (Social Security, Medicare, and Medicaid), along with interest in the current debt, account for roughly 75% of annual federal expenditures, they must be on the table. Again, there have been numerous bipartisan proposals for Social Security reform. For the sake of both the long-term viability of Social Security and controlling our federal debt, action on these proposals needs to take place as soon as possible.
In addition, both parties will have to make concessions to arrive at the 3% goal. Spending will need to be reduced, and additional revenue sources will need to be explored. As voters, it is time for us to hold our government’s feet to the fire. Reach out to your elected federal representatives and encourage them to support HR 981 and propose similar legislation in the Senate. Our nation’s fiscal future depends upon it.
