For every dollar added to the deficit, private investment loses 33 cents, which diminishes economic growth and wages over time.
NEW YORK, June 27 (Xinhua) -- The U.S. government's deficit is creating an income problem for Americans, with their payment for that debt diverting money away from private investment, which in turn may dampen wage growth, USA Today reported on Thursday.
"The exploding debt could cause as much as a 10 percent reduction in wage income within 30 years," said Kent Smetters, a University of Pennsylvania Wharton School professor and faculty director of the Penn Wharton Budget Model.
Based on the median household income of about 75,000 U.S. dollars, that's as much as a 7,500-dollar reduction in current dollars for the average household every year, he added.
To pay for increasing spending, the government issues debt like Treasuries and bonds with higher interest rates to attract investors. When investors put money into government debts, they do so at the expense of more productive private investments -- what economists refer to as the "crowding out effect," said the report.
Private investments might include the development of new products and technologies, construction of buildings and roads through loans, or buying company stock or bonds, it noted.
The Congressional Budget Office (CBO) estimates that for every dollar added to the deficit, private investment loses 33 cents, which diminishes economic growth and wages over time.
Last week, the CBO raised its estimate for the government deficit this year by a whopping 27 percent, or 408 billion dollars over its February forecast, to 1.9 trillion dollars. The increased national debt estimate is due partly to student-loan relief measures, higher Medicare expenses, and Ukraine aid, the CBO said.
Additionally, the CBO sees the deficit in the decade ahead rising to 22.1 trillion dollars, 2.1 trillion dollars more than its last forecast, according to the report. ■