Debt Reduction Could Raise Household Income by $36,000, Study Finds
A new report from the Committee for a Responsible Federal Budget argues that tackling the $40 trillion national debt would lower inflation and boost household incomes, offering a potential solution to the affordability crisis.
Addressing the United States' $40 trillion national debt could be the key to solving the affordability crisis facing American households, according to a new study from the Committee for a Responsible Federal Budget (CRFB). The nonpartisan watchdog group argues that fiscal discipline would not only lower inflation but also significantly boost household incomes, providing a potential silver bullet for policymakers in Washington.
The report comes as affordability and the cost of living remain top concerns for voters ahead of the 2026 midterm elections. A July study from Pew Research found that 29% of voters want to hear plans to address price increases from congressional candidates, while another 15% cited affordability and the cost of living as their key issues. The economy has become a political lightning rod, putting pressure on President Donald Trump to normalize global oil supply chains disrupted by the U.S.-Iran conflict.
According to the CRFB, deficit reduction could aid the Federal Reserve in its battle against inflation, which currently sits at 3.4%, well above the central bank's 2% target. The committee explains that when interest rates remain above the zero lower bound and the economy is near its productive capacity, reducing the deficit can reduce excess demand and slow price growth. It would also boost supply by reducing the «crowding out» of private investment, a concept that Treasury Secretary Scott Bessent has previously highlighted in his bond plan.
«Deficit reduction can further reduce inflation by lowering self-reinforcing inflation expectations to the extent it reduces the likelihood that future policymakers will aim to inflate away the national debt,» the committee wrote. The group also calculated the direct savings per household if inflation and interest rates were to fall. A 1.5 percentage point rate reduction would save a family $5,800 per year on a $500,000 mortgage and $500 per year on a $50,000 car loan.
The income factor is equally significant. Debt hawks argue that the value of U.S. debt is less important than the country's debt-to-GDP ratio, which currently stands at approximately 123%. The Congressional Budget Office (CBO) estimates that stabilizing this ratio would boost real per-person income growth by 10% over the next three decades, and by more than 44% compared to a high-debt scenario. Using CBO modeling, the CRFB projects that income per person would grow by $46,500 over the next three decades in today's dollars with stable debt, as opposed to $32,350 with rapidly rising debt. On average, people would enjoy $14,250 more annual income from stable debt, nearly $36,000 per household, compared to a rapidly rising debt scenario.
Some optimists suggest the U.S. debt-to-GDP ratio is healthier than that of other developed economies. Japan's ratio stands at around 207%, according to the International Monetary Fund, without a bond market meltdown. Policymakers, including President Trump, have suggested the U.S. can grow its way out of the imbalance. «There's nothing magic about the $40 trillion number,» Bessent said on CNBC last month. «And we can grow our way out of that.»
However, with the Treasury spending $3 billion a day in interest on the national debt, the urgency for growth and fiscal reform is clear. The CRFB's findings suggest that addressing the debt could provide both immediate relief to households and long-term economic benefits, offering a rare point of consensus in a divided political landscape.
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