Fiscal Policy Research Conclusion

The US is accumulating national indebtedness at a rate that will become unsupportable if not curtailed. These obligations impose an unfair burden on future generations and will limit their capacity to deal with the challenges of their time. By controlling the growing cost of healthcare entitlements, we can establish fiscal balance without raising taxes.

Summary basis of our Conclusion  

In 2001, the federal government began borrowing at a level that was unprecedented when measured by total debt, debt-to-GDP ratios, and interest expense. As of Fiscal Year 2024, net interest payments already exceed spending on both national defense and Medicare, and have surpassed Medicaid and all spending on children as well. In 2025, interest spending is projected to be the second-largest item in the federal budget—trailing only Social Security—and exceeds defense spending every year of the outlook. Starting in 2027, interest spending as a share of GDP will reach the highest level ever recorded. Looking further ahead, the Congressional Budget Office projects net interest costs will rise from 3.2% of GDP in 2025 to 4.1% in 2035, and to 5.4% by 2055, driven by growing debt and persistently higher interest rates. The projected growth of Medicare and Medicaid is the largest driver of fiscal imbalance. As discussed in our Healthcare Research, the US can reduce the total cost of healthcare by adopting the best practices of other developed countries. The result will be a reduction in the cost of healthcare entitlements, and a restoration of sustainable budget balance without increasing taxes. Finally, as we discuss in Defense Policy Research, reductions can also be safely made in defense spending without jeopardizing our safety.

Countries that set an example

Germany holds a government debt-to-GDP ratio of approximately 62.5% (as of late 2024), markedly below the US level of 107 %. It continues to fund universal health care, tuition-free college education, and is rapidly scaling up public infrastructure investments (targeting around €120 billion—or 2.7% of GDP—annually from 2025). While defense was modest traditionally, it is set to rise from around 2.4 % of GDP in 2025, to 3 % in 2027, and 3.5% by 2029.

Australia’s net debt stands at 43.8 % of GDP (2024), while the government continues to offer universal healthcare and a solvent public pension safety net. Defense spending is restrained at roughly 2.0% of GDP—2.03% in 2024–25 and 2.05% in 2025–26—with plans to reach 2.3% by 2034. Gross debt is projected at 3% of GDP by mid-2025, with net debt at 19.6%.

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