How big a problem is public debt?

[tongodeon]

Lots of people these days are concerned about mounting public debt, particularly in light of the TARP and stimulus programs. On one hand I see some cause for concern. Our public debt to GDP ratio isn't as high as it was during World War 2, so maybe we've got some breathing room. On the other hand at the end of World War 2 we had a ton of

Comments

[rezendi]

Mind you, those numbers are from one year ago, and the US's current deficit is in the region of 10% of GDP, no? Meaning that your debt-to-GDP ratio has already increased to 63%, and counting.

[loic]

Debt to GDP does matter, but as long as the US Dollar is the world's reserve currency it'll be easy for this country to borrow and it'll be in everyone's (well, except American industries') interests to keep the dollar strong.

One thing people seem reluctant to say out loud is that deficits are delayed taxation, with interest. With current US tax federal income tax revenue at about $1.1T we'd need to more than double the federal personal and corporate income tax rates to pay off the the current $14T debt in ten years. If we raise everyone's taxes by 20% (not twenty points - if you're paying 30% you'd be paying 36%) then it would take 64 years (at current revenue levels, ignoring both economic growth and interest rates) to pay off the debt.

I understand that debt-to-gdp is a standard measure, but to me it's not nearly as interesting a number as debt-to-income.