Soaring U.S. debt and projections that put it at astronomical levels in the coming years have set off increasing panic, though the precise level that sparks a crisis is unknown.
But the Penn Wharton Budget Model may have an answer: more than 210% of GDP.
Above that “outer bound” threshold, there’s no feasible tax on labor income that can finance interest payments on U.S. debt at returns acceptable to investors, PWBM warned in a report Thursday.
According to PWBM, the outer bound of federal debt is the solvency limit, beyond which defaulting on either Treasury debt or pay-as-you-go transfers like Social Security becomes a near certainty on an inflation-adjusted basis.
The debt-to-GDP ratio is about 100% today, and forecasts from the Congressional Budget Office see it hitting 175% by 2056—suggesting 210% is decades away on its current trajectory.
