When economist Jessica Riedl ’98 looks at the way current politicians discuss America’s national debt, she’s deeply discouraged.
“[Both parties are] addicted to the politics of Santa Claus,” she says. “They are there to cut taxes, hike spending, and hope that they’re not around when the bill comes on.”
With growing budget deficits, the federal government is watching debt soar, and that could lead to an economic crisis. On the May 13, 2025, UW Now Live, host Mike Knetter spoke with two Badger economists about the national debt and what the Trump administration’s fiscal policy means for the future. His guests were Ananth Seshadri, who holds the UW’s Mary Sue and Mike Shannon Distinguished Chair in Economics and serves as director of the Center for Research on the Wisconsin Economy, and Riedl, a senior fellow at the Manhattan Institute.
Seshadri laid out the state of the U.S. economy, including what he sees as the four big challenges that America faces: the retiring Baby Boomer generation, a slowdown in productivity growth, a rise in health care spending, and the increasing cost of interest payments.
“Nearly three-quarters of federal funding goes to either interest payments or mandatory programs like Medicare and Social Security,” he said. “If growth slows down, which is what’s been going on in the last two decades, or if interest rates rise, which has been going on in the last five years or so, we need to cut spending.”
The cost of interest payments will eventually crowd out investments the U.S. might make for its future. “A lot of the borrowing that we’ve been doing in the past is to finance consumption,” he said. “I think it’s important we borrow a finance productive investments and have a serious conversation of which of these are productive, [such as] investments in [research and development] and early childhood education.”
Riedl explained how rising national debt will limit the government’s ability to address other problems.
“The real danger is that over the next decade, interest costs are going to jump to $2 trillion a year,” she said. “And even that assumes low interest rates. What that means is that by the end of the decade, about 30 percent of all your federal taxes will just go to paying interest on the debt.” That problem will only compound over time. “Three decades from now, about 60 percent of all federal taxes will just go to paying interest on debt.”
Riedl argued that Congress will have to both increase taxes and make serious spending cuts to popular programs such as Medicare and the Department of Defense to get debt under control. Otherwise, the country faces years of economic decline.
“The danger is this debt is going to strain the financial markets, which is going to push up interest rates more and create a vicious circle of debt and [slow] growth,” she said. “We want to grow our way out of this, but economic growth is already going to face real constraints due to stagnant labor-force growth.”
