This disastrous federal policy could cost Americans $14,000 in annual income, analysis warns

The federal government is buried in $32.69 trillion in debt, an astounding $253,686 per taxpayer. And the trajectory of our federal finances looks certain to only drag us further into the red. Most Americans intuitively understand that this isn’t sustainable. But a new analysis from the nonpartisan Congressional Budget Office makes clear just how this reckless federal debt spending will hurt everyday Americans.

The analysis maps out projected incomes over the next 30 years. It finds that, assuming no negative economic impact from increased federal debt, income per-person is anticipated to increase by a whopping $45,200 per person by 2053. However, the expected levels of debt under current law would reduce that income growth by one-sixth, equating to $8,000 less in per-person income three decades from now. And, when they factor in not just currently-authorized spending but also additional spending for more future tax cuts and spending increases, income growth would actually be reduced by one-third, an astounding $14,100 less in per-person income. 

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So, the rising federal debt isn’t simply a matter of public finance. It has drastic real-world ramifications for struggling American families and everyday workers.

You might be wondering: Why, exactly, does increasing the federal debt mean lower per-person income? Well, because of a phenomenon called “crowding out.”

“Higher debt reduces future income by exacerbating a phenomenon known as ‘crowd out,’ where the availability of debt and changes in interest rates lead investors to devote an increasing share of savings toward Treasury securities at the expense of more productive investments,” the nonpartisan Committee for a Responsible Federal Budget explains. “In fact, CBO's standard model assumes that every new dollar of government borrowing reduces private investment by 33 cents.”

Essentially, the more money the government is borrowing to finance its spending, the less money there is to be loaned out for productive, private sector investments that would’ve led to higher wages.

Or, as Milton Friedman famously put it, there’s no such thing as a free lunch. So, if our politicians continue to recklessly spend money we don’t have, working Americans will pay the price through lower living standards and future incomes.

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