Puri | Stanford students will pay the price of the national debt — approximately $28,530 per year
Last spring, Harvard’s Institute of Politics released its 47th “Youth Poll” gauging the political opinions of Americans ages 18 to 29. One question asked which public issues concerned respondents the most. Alongside some rankings that should interest progressives (young people care much less about the Gaza war and student loans than they believe), most astonishing was an issue pollsters did not even think to include, probably because they assumed most young Americans neither care nor think much about it at all. That neglected issue was, of course, the $36 trillion-and-counting national debt they inherit.
Perhaps the debt is simply too gargantuan to be considered anything other than abstract. Most of its inevitable effects have not yet been felt, allowing us to worry more about immediately painful problems like inflation. But severe pain from the national debt is coming, and young people ought to know what it will cost them. For Stanford students, that cost will be approximately $28,530 per year. Let us examine how:
Every winter, the nonpartisan Congressional Budget Office (CBO) publishes a ten-year outlook for the federal debt based on current tax and spending laws. In 2025, the agency expects the debt to rise by $1.9 trillion, driven almost entirely by old-age entitlements — Social Security and Medicare. Deficits will increase to at least $2 trillion each year in 2030, causing debt to exceed $59 trillion by the end of the projection period in 2035, or 134.5 percent of the American economy.
The government must pay interest on every dollar it borrows — a rate set by financial markets. The CBO estimates optimistically that the average rate paid on the national debt will rise to 3.8% over the next three decades. That may not seem like much, but recall the denominator: 3.8% interest on a $52 trillion debt will cost nearly $1.8 trillion in 2035.
Already in 2025, interest payments — projected at $952 billion — are the second largest category of federal expenditures behind Social Security. That means payments to bondholders have eclipsed the following programs: Medicare ($942 billion), Medicaid ($656 billion), national defense ($862 billion), all means-tested welfare and all veterans’ benefits.
As the government does not even fully pay for its core programs, it certainly is not covering these ballooning interest costs with tax revenue. Instead, it borrows around a trillion dollars every year to pay interest on the trillions it has already borrowed.
This perverse cycle causes America’s debt as a share of the economy to rise relentlessly. But that trajectory, notes budget expert Jessica Riedl of the Manhattan Institute, cannot last forever. U.S. financial markets — banks, pension funds, individual investors, etc. — simply cannot supply the $150 trillion in lending implicitly expected of them. Penn Wharton’s premier budget model estimates that, under the “best case” scenario, markets sustain no more than 20 years of projected deficits before defaulting on the debt is inevitable.
But rest assured. Forward-looking markets will stop financing debt they know is unsustainable long before default is mathematically unavoidable. There will, therefore, be a “debt crisis” in the coming years once investors lose confidence in Washington and refuse to purchase all the new debt it needs to meet existing obligations.
The most likely scenario then, Riedl believes, is that Congress will be forced to enact a colossal combination of entitlement cuts and tax increases. Such taxes will fall disproportionately, but far from exclusively, on upper earners. Not only will high-income taxpayers be the easiest target from which to raise revenue politically, but they will also pay the most in dollar terms under flat rates. Thus, those who will bear the greatest financial burden from the national debt are young Americans on track to earn very high salaries. In other words, current Stanford students.
Should seniors be too old to absorb benefit reductions, Riedl says, “financing the projected budget deficits might require payroll tax increases as high as 10% combined with a value-added tax exceeding 10%.” Those would be “European-sized taxes — without the accompanying social benefits enjoyed by working European families.”
The median Stanford graduate earns a mid-career pay of $181,200. Against that income, an additional 10% payroll tax would subtract $18,120 from yearly paychecks. A 10% value-added tax on consumption — calculated roughly as a share of post-tax income in, say, California — costs $10,410 more.
Add that up, and the total cost in taxes that a typical Stanford graduate will pay to prevent default on the national debt comes out to $28,530, annually. That is the cost of paying, in effect, for two entitlement states simultaneously: one for the next generation of retirees and one for today’s retirees who have heaped the bill onto their children.
Republicans once conveyed the immorality of this arrangement, at least in their rhetoric. Now, America has no fiscally serious party — just two wildly irresponsible ones. Democrats aspire to swell entitlements without imposing the middle-class taxes necessary to pay for them. Republicans hope to slash taxes without scratching popular programs. This week, those in Congress are debating by how many trillions of dollars they wish to increase the national debt above the already catastrophic projections.
Their obscene proposals, like most opinions on fiscal policy, are predicated on a fantasy: that we can have an extensive welfare state in America and not pay for it. Reality demands that we will, eventually. So, when a pollster asks which policy issues you care most about, remember what you will soon be paying for the nation’s profligacy: roughly the price of a new midsize Honda sedan, every year, for the rest of your life.
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