High and Rising US Federal Debt: Causes and Implications

The outlook for federal debt represents a significant economic challenge for the United States. Economic developments and policy changes over the past two decades have materially raised the level of current and projected debt, but the primary factors behind the projected upward trajectory of debt remain population aging and rising health care spending. Even under optimistic economic scenarios, debt will soon reach levels well above historical experience, which will impose significant economic costs and risks. Although changes in policy that substantially narrow the deficit have economic and political disadvantages, they are necessary to put the federal budget on a sustainable path.