Must taxes always increase in step with spending to maintain a fixed debt-to-GDP ratio?
No
The level of public debt relative to GDP is the most meaningful indicator of the debt burden because the cost of financing a given level of debt is lower with a larger economy. If the GDP growth rate exceeds the interest rate the government pays on its debt, then the debt-to-GDP ratio will decrease over time even if the government budget is balanced. In that sense, taxes don’t need to increase to lower the debt-to-GDP. However, a permanently higher debt-to-GDP ratio could pose risks, especially if the cost of borrowing for the U.S. government goes up. Due to the COVID-19 relief spending in 2020, the federal debt-to-GDP ratio increased to the highest level since World War II, but has since narrowed in early 2021.
This fact brief is responsive to conversations such as this one.
Sources:
Econofact is partnering with Gigafact–an initiative focused on countering misinformation and spreading facts.