How’s the public debt looking? Not bad!

CBPP debt to GDP ratio
Less alarming than the alternative! (Center on Budget and Policy Priorities)

A couple years ago, the growth curve on the U.S.'s debt-to-GDP ratio looked pretty apocalyptic, skyrocketing up to 200 percent by 2040. But thanks to health-care reform slowing the rise of Medicare spending, low interest rates, cuts in discretionary spending and higher tax rates on the wealthy, the Center on Budget and Policy Priorities projects a much more gradual increase.

Now, we're not as panicky about high debt-to-GDP ratios these days, since the key scholarly work asserting a negative effect on economic growth at the 90 percent threshold has been called into question. But even if the causality runs the other way -- that slow economic growth boosts debt -- it's still not a happy indicator. And there's another benefit to slower debt growth projections: It makes a permanent fix potentially easier to stomach.

"The world doesn't come to an end if one for extended periods of time we have 80  percent debt-to-GDP ratios. But it would be better to be lower, for a variety of reasons," says CBPP President Robert Greenstein. "The fact that debt ratios are not exploding means that one could put together a long-term deficit reduction package that does not need to contain as big changes on revenues or programs as it would if we were at 200 percent debt-to-GDP, which makes it easier to get to agreement. Although we're at a period of gridlock at the moment, we hope that the fact that it's more doable at this point would help lead to action."

Much more in the actual paper here.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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