B --- the plan causes crowd-out of capital investments --- CRITICAL to startups
Boccia and Lett, 23 (2/1/2023; Romina Boccia is director of budget and entitlement policy at the Cato Institute, where she specializes in federal spending, budget process, economic implications of rising debt, and Social Security and Medicare reform, MA in Economics from George Mason University, Dominik Lett is a Research Associate at the Cato Institute, BA in Political Science from Wichita State University; “The Debt Limit and the High Costs of Debt”; Cato Institute; https://www.cato.org/blog/debt-limit-high-costs-debt) //LVL
Investment Crowd Out. As debt grows, it also crowds out private investments. When the government borrows money, it does so from the public and businesses. Increasingly, savings purchase Treasury securities instead of going towards productive capital investments like startups and other businesses, research and development, and new technologies. Even assuming possible benefits from increased federal borrowing, such as when the government makes effective public investments in public health or national security, debt crowd‐out results in lower economic output and incomes.
In 2019, CBO estimated the economic effects of high and rising debt under several scenarios. Compared to CBO’s alternative baseline scenario, stabilizing the debt at 2019 levels would result in gross national product (GNP) being $2.7 trillion higher by 2049. That’s an increase of $7,000 per person. Reducing the publicly held debt (the debt the United States has borrowed from credit markets) to 42 percent of GDP would result in GNP being $3.5 trillion or $8,900 per capita higher.
Since 2019, the publicly held debt‐to‐GDP ratio has risen from 78 percent to 97 percent at the end of 2022. According to CBO calculations, stabilizing the debt in 2019 and reducing it to 42 percent of GDP required reducing the annual primary deficit (the difference between revenues and noninterest spending) by 1.8 percent and 2.9 percent of GDP, respectively. The economic benefits of similar‐sized deficit reductions today would likely be even larger. Likewise, the economic risks of unsustainable deficit growth will only increase in severity over time.