Debt and Growth Concerns Overshadow Budget Success

The good news that the U.S. budget deficit is lower than before the 2008 financial crisis has taken a backseat to concerns about economic growth and the nation’s debt load. Of particular concern are the costs set to rise later this decade from an increase in health care spending and retirement benefits for baby boomers. Although the deficit is at its lowest level since 2007, the U.S. has added $8 trillion in debt. This represents a 140% increase which has nearly doubled the debt-to-GDP ratio (which stands around 73%). To date, the increased debt load hasn’t widened deficits due to an ultra-low interest environment which resulted in debt-service costs falling to 1.3% of GDP in 2014. Some analysts worry that new concerns will emerge given the presidential campaign rhetoric. Republicans are pushing for tax cuts while democrats are touting free college tuition and expanding social benefits both of which are likely to increase the deficit.1 Keep an eye out over the coming months to see if presidential candidates from either side of the aisle can bring forth plans to reduce future deficits rather than proposals that would increase them.

1Wall Street Journal; Debt, Growth Concerns Rain on Deficit Parade