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Will Growing Government Debt Undermine the American Dream?

The Implications of

Mounting Federal Debt for the Debt Paying Generation

Presentation by

William BeachDirector, Center for Data Analysis

The Heritage Foundation

February, 2010

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The Obligations of the Debt Paying Generation

• Total debt expected to grow from $7.5 trillion in 2009 to over $15 trillion by 2020.– That is from 53% of GDP in 2008 to 67% of GDP in 2019. In

2008, debt equaled 41% of GDP

• Tsunami of debt from Social Security, Medicare and Medicaid will push total debt to 320% of GDP in 2050 and 750% in 2083

How Much is One Trillion Dollars?

• 1,000 billion

• $1,000,000,000,000 (that’s 12 zeros)

• At $42 million per year, LaBron James would need to work 23,809 years.

• Average life in the U.S. lasts 2.4 billion seconds

• One billion seconds ago = 1977

• One trillion seconds ago = 30,870 BC

• One trillion seconds from now = 34,890 AD

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Debt Always has to be Paid

• Payment can be made by– Raising taxes– Lowering future spending– Inflation or dollar devaluation (debt repricing)– Debt repudiation

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Unfortunately,we have very big debts

to come,and our incomes won’t grow as

fast as our spending…

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Let’s Get Personal:Repaying this Debt

Will “Down Size” the American Dream• If you are in your early 20s, the “economic stimulus” debt alone will cost

you $280 per month for the rest of your life = buy and trash an iPod a month.

• Your generation’s average tax rate will double and your children will pay three times as much. That probably means:– First home purchase later in life.– Marriage later in life and later to start to families.– Longer time to pay off student loan debts.– Slower earnings growth over your lifetime.– Less savings for education, health care, and retirement.– Smaller wealth transfers to your children and grandchildren.