Is it necessary to balance the Federal budget?   

For years, the prevailing wisdom has been… not really.

In fact, over the past 50 years, only two U.S. presidents managed to balance the federal budget: Lyndon Johnson (briefly, in1969) and Bill Clinton (from 1998 to 2001). Since then, it’s been pretty much red ink as far as the eye can see.

In 2019, two highly respected economists, Lawrence Summers and Jason Furman, published a widely discussed essay titled “Who’s Afraid of Budget Deficits?” Their main argument? As long as the economy is growing faster than the interest on our debt, we’re fine.

In other words:

• Don’t worry about paying off the loan. 
• It’s OK for the loan to keep getting bigger.
• Just keep interest rates low and make sure the economy grows faster than the ballooning interest payments. 

(Does anyone else see a problem with this thinking?) 
 

Here’s the plot twist!

Those same economists are now sounding the alarm. ⁽¹⁾ 

What changed?

Among their concerns:

• Government payments on debt interest soared to $881 billion in 2024.
• This is more than the United States spent on either Medicaid or national defense. 
• The high interest payments crowd out money for other priorities like infrastructure, healthcare, education, and public safety.
• Moody’s recently downgraded U.S. bonds—raising concerns about our ability to re-pay our debts. This is an indicator that interest rates may not be decreasing any time soon.

In the words of Lawrence Summer, “now would be a very good time for Washington to bring back its debt obsession.” ⁽¹⁾ 
 

I don’t have a crystal ball.  I suspect we should plan on paying higher interest rates and, at some point, higher taxes. 
 

Now is a good time to save and invest for our own futures. It’s also a good time to be curious about Roth conversions and other ways to mitigate future taxes. 
 

If you’re wondering how all this impacts your financial plan—or you just want a gut check—I’m always happy to help.

Barbara

June 8,2025

(1)The Atlantic: The Debt Is About to Matter Again

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