The United States national debt stands at $31.6 trillion, equating to over $290,000 for each household. According to the Budget Lab at Yale, congressional spending decisions since 2015 have raised Treasury yields by nearly one percentage point, which has increased borrowing costs for American households. For instance, the rise in long-term interest rates has added approximately $2,500 annually to the costs of a 30-year mortgage at last year's median home price, totaling around $76,000 over the loan's duration.
The increase in government deficits has also affected other borrowing costs, with typical auto loans rising by about $120 and small-business loans by approximately $770. While politicians have acknowledged the impact of rising prices on affordability, few have suggested measures to reduce federal deficits, which could help lower costs. Historical data shows that in the 1990s, deficit reduction efforts led to a decrease in borrowing costs by about 0.6 percentage points.
Recent legislation, including the Fiscal Responsibility Act of 2023, aimed to improve the fiscal outlook by cutting spending, but overall federal policy has continued to increase spending. The costs associated with ongoing military actions and major legislation have contributed to rising interest rates, further impacting mortgage costs.
Economists generally support deficit spending during temporary crises, but the U.S. has been spending beyond its means for over two decades. Proposed solutions to address the deficit include raising taxes and cutting spending, though these options are often politically unpopular. The IRS estimates a tax gap of about $700 billion annually, indicating potential revenue that could be collected. However, the costs of closing the deficit are often more visible to those directly affected, complicating the political landscape.
To address the issue of federal deficits, economists and policymakers need to communicate the implications of deficit spending more effectively, focusing on how it affects everyday financial responsibilities for American families.