C.2. Debt Reduction

When debt held by the public exceeds sixty percent (60%) of gross domestic product (GDP), systematic reduction is required during periods of economic expansion, but must be managed to avoid extreme shocks to the broader economy.

If you run trillion-dollar deficits, you rack up debt. There is no way around that fiscal reality. That debt eventually has to be paid—the questions of how and when become very important.

The “when” is, or should be, obvious. It’s the same as it is for the average citizen in their household finances. You pay debt back in good times and (unfortunately) rack it up in hard times.

The answer to “how” is trickier. Let’s stick with our household example for a bit longer. Even in good times, your family has to eat. If you spend too much of your money on debt service, even in good times, you won’t have money left to buy groceries. Your family will suffer. The same principle applies. The government can’t cut back too severely on necessary “discretionary” spending (non-mandatory but crucial for the economy) to pay down debt. If it does, those cuts will hurt the economy. It’s inescapable.

This language recognizes the need to pay down debt in a good economy, but also to do so carefully to prevent unnecessary economic pain.

During an economic downturn, recognized by a joint resolution of Congress passed by a three-fifths (³/₅) majority, or during a declared war, there is no requirement for debt reduction.

Absent these unusual circumstances, whenever the debt ratio is higher than the trigger threshold, Congress must structure spending such that debt is reduced between one percent (1%) and five percent (5%) of Gross Domestic Product, each year until the debt is below sixty percent (60%).

The same circumstances that allow for deficit spending also allow for a pause on any required debt relief. Outside of those two circumstances – war and a formally recognized economic downturn – if debt is greater than 60% of GDP, Congress must act to reduce that debt between 1% and 5% of GDP annually until the debt falls below that threshold. It isn’t complex. It also isn’t especially elegant. It's simply functional. This mandated debt reduction will protect the fiscal health of the United States. And with it, maybe, we can walk past that fiscal graveyard without existential dread.