Each newborn American inherits the national debt which they are charged with helping repay once they are old enough to pay taxes. Ironically, once these newborns are paying taxes they generally run a budget deficit as well and their children will inherit the same budget issues. The national debt continues to grow and run from generation to generation unless drastic changes and measures are implemented in order to decrease and pay off this debt.
According to the Congressional Budget Office’s budget outlook, from 2010 to 2011, the budget deficit is expected to fall from $1.3 trillion to $980 billion. This is an anticipated 6.5% of GDP. These calculations assume that no major legislative changes occur in the next year. According to this same report, the unemployment rate is expected to begin to decline starting in 2011 and significantly improving between 2013 and 2014. These projections, if correct, will most definitely help improve the budget situation because more people will be paying into the system than drawing out of it.
The view of “let’s take care of our future generations and start repaying our massive public debt!” is idealistic but not always the best option. Yes, it is a good idea to start paying down the debt, but once the debt is eliminated this will result in much higher interest rates for future generations. Carrying over a balance of some sort can prove to be beneficial for people. However, too much of a balance is detrimental because it is very overwhelming and does cause economic uncertainty when there is too great of a deficit.
References:
Collinge, Robert A. & Ronald M. Ayers. Economics By Design: Survey & Issues, 3rd Ed.
New Jersey: Pearson Prentice Hall, 2004.
Congressional Budget Office. “The Budget and Economic Outlook: Fiscal Years 2010 to
2020.” January 2010. Internet: <http://www.cbo.gov/ftpdocs/108xx/doc10871/ BudgetOutlook2010_Jan.cfm>.
