America’s never had such high national debt heading into an economic shock. We need a ‘break glass’ plan, think tank warns | Fortune

The Committee for a Responsible Federal Budget (CRFB), a Washington-based fiscal watchdog renowned for its nonpartisan analysis, has released a sweeping new report that paints a stark picture of America’s fiscal health. Its board, comprising a distinguished roster of former senators, cabinet secretaries, and governors from both political parties, lends considerable weight to its findings. The report unequivocally states that policymakers are “woefully underprepared” to handle the next recession or financial shock, warning that the nation’s immense debt burden could severely compromise its ability to protect its citizens and economy.

“The country is almost certain to enter the next shock more indebted than we have ever been before,” the think tank asserted, underscoring that this unprecedented level of indebtedness “may significantly hamper our ability to marshal an appropriate response.” This isn’t merely an academic concern; it has tangible implications for how the government can react to widespread job losses, business failures, or natural disasters, potentially leading to slower recoveries and prolonged hardship for millions of households.

To mitigate this looming risk, the CRFB is urgently calling on Congress to develop what it terms a “Break Glass Plan”—an emergency blueprint, prenegotiated and ready to deploy the moment a crisis strikes. The analogy, evoking the clear instruction "break glass in case of emergency," highlights the immediate and critical need for a predefined strategy rather than the reactive, often chaotic, responses of the past. The report bluntly states, “The U.S. has never experienced an economic shock as indebted as we are today. This situation leaves the U.S. immensely vulnerable.”

The task of crafting such a plan is made exponentially harder by the current economic environment. The CRFB notes, “Our dismal fiscal outlook, in combination with lingering inflationary pressures and ongoing Treasury market volatility, makes crafting any response to a potential future economic shock extremely difficult.” This confluence of factors—high debt, inflation, and market instability—creates a fiscal straitjacket, limiting both the magnitude and effectiveness of potential government interventions. Yet, despite the immense difficulty, the think tank insists, such a plan "must happen."

A Precarious Fiscal Trajectory: Unprecedented Debt Levels

The report lays out the high stakes by drawing a critical comparison to previous economic downturns. The nation’s fiscal runway has drastically shortened over the last two decades, diminishing its capacity to absorb further shocks.

• Dot-com Bubble (early 2000s): When the tech bubble burst, U.S. national debt stood at a manageable 34% of GDP, and the federal government was even running a surplus. This allowed for significant fiscal flexibility.
• 2008 Financial Crisis: As the Great Recession unfolded, debt had only slightly increased to 35% of GDP. While the response to this crisis, including the Troubled Asset Relief Program (TARP) and subsequent stimulus, significantly increased the debt, the starting point was relatively low.
• COVID-19 Pandemic (2020): By the time the pandemic hit, the national debt had already climbed to 79% of GDP. The unprecedented scale of the federal response—including trillions in aid, unemployment benefits, and business support—pushed the debt to new heights.

Today, the situation is far more precarious. The national debt sits at roughly 100% of GDP, translating to over $34 trillion. Annual deficits are nearing 6% of GDP, indicating a persistent structural imbalance between government spending and revenue. Perhaps most alarmingly, interest payments on the national debt now consume nearly one-fifth of all federal revenue—a staggering figure that is roughly double the share from each of those prior crises. This means a substantial and growing portion of taxpayer money is going merely to service existing debt, rather than funding critical public services, investments in infrastructure, or national security.

The numbers are only expected to worsen, according to projections from the nonpartisan Congressional Budget Office (CBO). By 2036, the CBO forecasts that the debt is on track to reach 120% of GDP. At that point, interest payments alone are projected to swallow $0.26 of every dollar the government takes in. Such a scenario would drastically constrain future policymakers, leading to difficult choices between cutting essential programs, raising taxes significantly, or risking a loss of confidence from international creditors. This "crowding out" effect could stifle economic growth, reduce public investment, and ultimately diminish the nation’s long-term prosperity.

Diverse Disaster Scenarios and Lingering Risks

The CRFB’s report outlines a range of potential disaster scenarios, emphasizing the breadth of threats the U.S. faces. These include:

• Asset Bubbles: The popping of overinflated asset bubbles in sectors like real estate, equities, artificial intelligence (AI), or digital assets could trigger widespread financial instability. Rapid declines in asset values can destroy household wealth, curb consumer spending, and destabilize financial institutions, leading to broader economic contraction.
• Black Swan Events: Unforeseen, high-impact events such as catastrophic natural disasters, large-scale cyberattacks, global pandemics, or major wars could severely disrupt supply chains, energy markets, and economic activity. The report’s mention of geopolitical tensions, such as a prolonged conflict in the Middle East leading to sustained oil price shocks above $100 per barrel, serves as a vivid example of how external events can rapidly destabilize the global economy and reverberate domestically.
• Fiscal or Monetary Policy Errors: Missteps by policymakers could inadvertently exacerbate an economic downturn. This is especially true in a "stagflation scenario," where high inflation coexists with slow economic growth and high unemployment. Managing stagflation is notoriously difficult for central banks, as raising interest rates to combat inflation can worsen unemployment and slow growth, while lowering rates to stimulate growth can fuel inflation. The current environment, with persistent inflation and a slowing global economy, makes this a distinct and worrying possibility.

A History of Haphazard Responses

A core concern for the CRFB is not just the sheer scale of America’s debt, but Washington’s well-documented habit of making things worse through reactive, rather than proactive, crisis management. “Too often, lawmakers wait for the emergency to happen before thinking through how they might react,” the report warns. “These crisis-driven responses can be costly and haphazard and, in some cases, may solve one problem while creating another.”

The group points to the last two major downturns as stark evidence. The Great Recession, triggered by the housing market collapse and financial sector instability, saw the national debt increase by roughly 35 percentage points of GDP. The subsequent pandemic response added another 20 points. In neither case did Washington subsequently rein in its borrowing once the immediate danger passed. Instead, emergency spending often morphed into permanent additions to the budget, and the political will for fiscal consolidation evaporated. The result is a structural deficit that now operates as a permanent feature of the federal budget, rather than a temporary response to crisis, continually adding to the national debt even in times of economic growth.

The report also issued a strong caution against the reflexive urge to simply spend more in a crisis. “As the experience in the early 2020s showed, excessive stimulus can ultimately lead to surging inflation and interest rates, particularly if supply is constrained,” it said. The massive fiscal stimulus enacted during the COVID-19 pandemic, while preventing a deeper recession, contributed significantly to the inflationary pressures that have plagued the economy since. If the next crisis is itself triggered by high debt—through a collapse in Treasury market confidence, a currency crisis, or a spiral of inflation—piling on more borrowing could actively backfire, accelerating the very problems it seeks to solve. “Near-term fiscal stimulus is often an appropriate response to a recession or economic shock. But in an environment where high debt fuels panic, debt-increasing fiscal stimulus can backfire,” the report states.

The CRFB’s Four-Part "Break Glass Plan"

To avoid repeating past mistakes and to ensure a more effective and fiscally responsible response to the next crisis, the CRFB proposed that Congress develop and agree upon a comprehensive four-part emergency framework before a crisis arrives.

1. Targeted, Right-Sized Stimulus Response: The first element calls for a stimulus package tailored to the specific nature of the shock. This means avoiding the common practice of attaching a “wish-list of priorities” that lawmakers too often include in emergency bills, which can inflate costs and dilute the effectiveness of the response. Instead, stimulus should be focused on directly addressing the economic damage, such as enhanced unemployment benefits, aid to specific industries, or infrastructure projects that create jobs efficiently. This approach would maximize impact while minimizing unnecessary spending.

2. "Super PAYGO" Rule: The second proposal is a "Super PAYGO" rule, requiring Congress to pair every dollar of near-term emergency spending with two dollars in medium-term savings. This innovative mechanism would signal to creditors and markets that while the U.S. is committed to supporting its economy during a crisis, it is equally serious about controlling the growth of debt. “Adopting two-for-one deficit reduction would send a signal to creditors that our government is serious about controlling the growth of debt, even as we engage in near-term borrowing to support the economy,” the report explains. The CRFB identifies several potential savings vehicles with bipartisan appeal, such as requiring Medicare to pay equal rates for the same procedure whether performed in a hospital or a doctor’s office (estimated savings of $210 billion over a decade), reducing Medicare Advantage overpayments ($170 billion), and closing an exploit in the state and local tax (SALT) deduction cap ($200 billion). These measures offer substantial savings without dramatic cuts to essential services.

3. Default Deficit Reduction Mechanism: The third element is a "default deficit reduction mechanism"—an automatic set of fiscal guardrails that would kick in once the economy recovers from the immediate crisis. This mechanism would automatically freeze the growth of certain mandatory spending programs, including Social Security, Medicare, and Medicaid, hold discretionary spending flat, and phase in a graduated surtax on high earners and corporations. Such a pre-programmed adjustment would remove the political paralysis that often prevents necessary fiscal consolidation. Under the CRFB’s estimates, this mechanism could cut deficits to 3% of GDP within four years, saving an estimated $3.5 trillion over five years and a remarkable $10.25 trillion over a decade, putting the nation on a much more sustainable fiscal path.

4. Bipartisan Fiscal Commission: The fourth piece—and arguably the most politically ambitious—is the establishment of a bipartisan fiscal commission. This commission would be empowered to replace the blunt automatic cuts of the default deficit reduction mechanism with more carefully tailored, comprehensive reforms to the tax code, entitlement programs, and the federal budget process. Its specific mandate would be to “restoring solvency to Social Security and Medicare” and “reducing fraud and abuse,” according to the report. Crucially, its recommendations would receive expedited votes in both chambers of Congress, bypassing typical legislative roadblocks. This approach echoes the successful 1983 Social Security commission, where Democratic Speaker Tip O’Neill and President Ronald Reagan put partisan politics aside to ensure the program’s long-term viability. Martha Shedden, president and cofounder of the National Association of Registered Social Security Analysts, expressed a similar sentiment to Fortune earlier this month, longing for another such bipartisan effort. Such a commission would offer a politically viable path to address the nation’s most challenging fiscal issues with a long-term perspective.

The Urgency of Now

The CRFB’s warning arrives at a moment of particular economic and political volatility. Long-term Treasury yields remain elevated, with ten-year notes over 4% and 30-year bonds approaching 5%. These higher yields mean the government’s borrowing costs are significantly increasing, further exacerbating the debt problem. Meanwhile, inflation, though moderating, still lingers above the Federal Reserve’s 2% target, complicating monetary policy decisions. Congress is simultaneously engaged in debates over sweeping tax and spending changes, many of which, according to the CRFB and other fiscal watchdogs, could add further trillions to the national debt without adequate offsets.

Since 1950, the U.S. has experienced 11 recessions—roughly one every seven years; the last one ended in 2020. By historical averages, another economic downturn could arrive at any time. However, unlike every prior downturn in modern American history, the next one will find the U.S. Treasury with less room to maneuver than it has ever had. The fiscal tools available to policymakers are constrained, and the political will to make tough choices appears fragmented.

“The sooner such a plan is ready, the better,” the report concludes, emphasizing the unpredictable nature of crises. “One never knows when an emergency will arise, and we must be prepared to break the glass.” The stakes for the nation’s economic stability and the financial well-being of ordinary Americans have never been higher, making the call for proactive fiscal planning an imperative.