The government’s deficit problem is creating an income problem for Americans, economists warn.
Last week, the Congressional Budget Office raised its estimate for the government deficit this year by a whopping 27%, or $408 billion over its February forecast, to $1.9 trillion.
Paying for that debt can divert money away from private investment, which in turn may dampen wage growth, economists say.
“The exploding debt could cause as much as a 10% reduction in wage income within 30 years,” said Kent Smetters, a University of Pennsylvania Wharton School professor and faculty director of the Penn Wharton Budget Model.
Based on the median household income of about $75,000, that’s as much as a $7,500 reduction in income in current dollars for the average household every year, he said.
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How does national debt hurt salaries?
The increased national debt estimate is due partly to student-loan relief measures, higher Medicare expenses, and Ukraine aid, CBO said. Additionally, CBO sees the deficit in the decade ahead rising to $22.1 trillion, $2.1 trillion more than its last forecast.
To pay for increasing spending, the government issues debt like Treasuries and bonds with higher interest rates to attract investors. When investors put money into government debt, they do so at the expense of more productive private investments – what economists refer to as the “crowding out effect.”
Private investments might include the development of new products and…
