Surging national debt can cripple economy – Boerne Star

Fiscal Imbalance and its Implications for Sustainable Development

Current Fiscal Status

A report on the United States’ fiscal health reveals a significant and accelerating challenge to its long-term economic stability. The gross national debt has escalated to $38 trillion, marking a substantial increase from $32 trillion in 2023. This trajectory indicates an addition of approximately one trillion dollars to the national debt every five months.

• The national debt currently exceeds the nation’s Gross Domestic Product (GDP) by more than $7 trillion.
• Projections from the Peterson Foundation indicate that continued borrowing will add an estimated $4.1 trillion to the national debt over the next decade, increasing the risk of further credit rating downgrades.
• This fiscal situation places the U.S. at a higher credit risk compared to nations like Germany and Canada, leading to increased borrowing costs for the government.

Impact on Sustainable Development Goals (SDGs)

The current fiscal trajectory poses a direct threat to the achievement of several key Sustainable Development Goals.

• SDG 8 (Decent Work and Economic Growth): Rising interest costs, now comparable to defense spending, threaten to crowd out public investment in essential programs that drive sustainable growth. The nation’s capacity to respond to future economic downturns is severely hampered, jeopardizing economic stability and job creation.
• SDG 10 (Reduced Inequalities): The escalating debt burden risks creating a legacy of diminished economic opportunity for future generations, thereby exacerbating intergenerational inequality. The fiscal structure contributes to a widening gap between different economic strata within the country.
• SDG 16 (Peace, Justice and Strong Institutions): The Committee for a Responsible Federal Budget (CRFB) highlights a state of “dysfunction” where fiscal safeguards are ignored and budgets are not passed on time. This erosion of fiscal discipline undermines the effectiveness and credibility of public institutions and erodes market confidence.

Analysis of Contributing Factors and Systemic Challenges

Primary Drivers of Fiscal Pressure

The core of the fiscal imbalance lies in a structural mismatch between government revenue and expenditure. National spending currently stands at 23% of GDP, while revenue is only 17% of GDP.

• Rising Healthcare Costs: Increasing expenditures in the healthcare sector are a primary driver of spending.
• Aging Population: Demographic shifts place significant pressure on social programs, particularly Social Security and Medicare.
• Skyrocketing Interest Costs: The cost of servicing the national debt has become a major and rapidly growing component of the federal budget.

Institutional and Governance Deficiencies

According to analysis from the CRFB, systemic governance issues are preventing effective solutions. The trust funds for Social Security and Medicare are projected to be depleted within seven years, yet there is a lack of political leadership in addressing this impending crisis. This inaction reflects a failure to build the effective, accountable, and inclusive institutions required under SDG 16.

A Proposed Framework for Fiscal Sustainability Aligned with SDGs

Strategic Objectives for Fiscal Reform

A long-term, sustainable fiscal plan is essential for aligning the nation’s economic path with the SDGs. The primary objectives of such a plan should be:

1. To stabilize the rise of the national debt as a share of the economy within the next 10 years.
2. To implement a long-term strategy to reduce the debt to a sustainable historical average, such as 49% of GDP, by 2050.

Policy Recommendations for Revenue and Expenditure

Achieving these objectives requires a balanced approach that addresses both revenue and spending, with policies designed to support key SDGs.

• Revenue Enhancement (Target: 21% of GDP):
  • Increase annual revenue by reforming the tax code to eliminate most deductions, exclusions, and credits. This approach broadens the tax base and can be structured to enhance fairness, supporting SDG 10 (Reduced Inequalities) without necessarily raising marginal tax rates.
• Expenditure Management (Target: 21% of GDP):
  • Freeze domestic and defense spending over a 10-year period to control discretionary outlays.
  • Implement comprehensive healthcare reforms to manage rising costs, contributing to the long-term viability of SDG 3 (Good Health and Well-being).
  • Place Social Security on a sustainable footing by reforming the benefits structure for the top 25% of earners, a measure that directly addresses SDG 1 (No Poverty) and SDG 10 (Reduced Inequalities) by ensuring the program’s solvency for those most in need.

Conclusion: The Imperative for Responsible Governance and Public Engagement

Call to Action for Stronger Institutions (SDG 16)

Addressing the national debt requires a commitment to responsible and effective governance. Nonpartisan collaboration and sustained public pressure on elected officials are necessary to compel the development of a fiscally sustainable federal budget. This aligns with the call in SDG 16 for effective, accountable, and transparent institutions at all levels.

Securing a Sustainable Future

Bringing the national debt under control is not merely a matter of fiscal accounting; it is essential for securing a prosperous and equitable future. A stable fiscal foundation is a prerequisite for making the investments needed to achieve the Sustainable Development Goals, from promoting economic growth (SDG 8) to reducing inequality (SDG 10) and ensuring the well-being of all citizens.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on the U.S. national debt touches upon several Sustainable Development Goals (SDGs) by discussing economic stability, social welfare, inequality, and institutional effectiveness. The following SDGs are relevant:

• SDG 8: Decent Work and Economic Growth

  The article’s central theme is the threat that rising national debt poses to economic growth and stability. It discusses the debt-to-GDP ratio, the need to grow the economy, and how uncontrolled debt could “cripple economic opportunity for future generations,” which directly relates to the goal of achieving sustainable economic growth.

• SDG 10: Reduced Inequalities

  The article explicitly mentions the “ever-increasing gap between the rich and the middle class” as a negative consequence of the current fiscal situation. It also calls for the “ultrarich” to “start paying their fair share” and proposes reducing Social Security benefits for the “top 25% of earners,” which are fiscal policies aimed at reducing inequality.

• SDG 16: Peace, Justice and Strong Institutions

  The article critiques governmental “dysfunction,” citing the failure “to pass budgets,” blowing “past deadlines,” and ignoring “fiscal safeguards.” It calls for an “honest, efficient and effective” government and the development of a “fiscally sustainable approach to the federal budget.” This directly addresses the need for effective, accountable, and transparent institutions.

• SDG 17: Partnerships for the Goals

  Specifically, this goal’s focus on finance and strengthening domestic resource mobilization is highly relevant. The entire article is a discussion on the need to reform the U.S. fiscal policy by balancing revenue and spending. The proposal to “raise yearly revenue to about 21% of GDP” and bring “spending down to that same 21% of GDP” is a clear call for strengthening domestic financial management.

• SDG 1: No Poverty & SDG 3: Good Health and Well-being

  These goals are connected through the discussion of Social Security and Medicare. The article warns that their trust funds are “just seven years from having their trust funds depleted.” These programs are critical social protection systems that provide income security (addressing poverty, SDG 1) and healthcare access (addressing well-being, SDG 3) for millions, especially the elderly.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed, the following specific SDG targets can be identified:

• Target 8.1: Sustain per capita economic growth in accordance with national circumstances

  The article’s concern that rising interest costs will “hamper our ability to respond to future economic downturns” and that the debt will “cripple economic opportunity” shows a focus on maintaining long-term, sustainable economic growth. The goal to reduce the debt-to-GDP ratio to historical levels is a strategy to ensure this sustainability.

• Target 10.4: Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality

  This target is directly addressed through the article’s proposed solutions. The author suggests specific fiscal policies such as eliminating tax deductions and preferences, which often benefit the wealthy, and reforming Social Security by “reducing benefits to the top 25% of earners.” These are concrete policy suggestions aimed at creating a more equitable system.

• Target 16.6: Develop effective, accountable and transparent institutions at all levels

  The article’s critique of the government’s inability to manage its finances points directly to this target. The author quotes the CRFB, stating, “We fail to pass budgets, we blow past deadlines, we ignore fiscal safeguards.” The call to “pressure our elected officials to develop a fiscally sustainable approach to the federal budget” is a demand for more effective and accountable institutions.

• Target 17.1: Strengthen domestic resource mobilization… to improve domestic capacity for tax and other revenue collection

  The core of the author’s proposal is to rebalance the federal budget, a key aspect of domestic resource mobilization. The specific suggestions to “raise yearly revenue to about 21% of GDP” and “bring spending down to that same 21% of GDP” are direct strategies for improving the nation’s fiscal capacity and achieving a sustainable budget.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions several quantitative and qualitative indicators that can be used to measure progress:

• Debt-to-GDP Ratio

  This is the most prominent indicator in the article. It is used to measure the scale of the problem (“Our debt exceeds current gross domestic product (GDP) by over $7 trillion”). The author also proposes a specific target for this indicator: reducing the debt to the 50-year average of “49% of GDP” by 2050. This directly measures progress towards fiscal sustainability (Target 17.1) and long-term economic health (Target 8.1).

• Government Revenue and Spending as a Percentage of GDP

  The article provides current figures for spending (“23% of GDP”) and revenue (“17% of GDP”) and proposes a target of balancing both at “21% of GDP.” These figures are direct indicators for measuring the effectiveness of fiscal policy (Target 10.4) and domestic resource mobilization (Target 17.1).

• Solvency of Social Security and Medicare Trust Funds

  The article provides a time-based indicator by stating the trust funds are “just seven years from having their trust funds depleted.” The number of years until depletion is a critical indicator of the health of these social protection systems, which are relevant to SDG 1 and SDG 3.

• National Credit Rating

  The article implies this as an indicator by mentioning that the U.S. is “no longer a top-tier credit risk like Germany and Canada” and that the Peterson Foundation “forecasts further debt rating downgrades.” A stable or improving credit rating would be an indicator of institutional effectiveness (Target 16.6) and market confidence in the economy.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: boernestar.com