Future Trends of U. S. Fiscal Position and Government Debt and Implications for China

Currently, the U. S. government's debt remains at a high level, and medium- to long-term projections indicate it will continue to grow, which has raised some external concerns about its sustainability. This paper argues that notwithstanding the elevated debt level, market participants generally expect the United States to deliver fiscal consolidation in a non-disruptive manner. Key supporting factors include the fact that all federal government debt is denominated in U. S. dollars, solid historical sovereign credit standing, as well as the lack of credible near-term alternatives to U. S. Treasury securities as global safe assets and the dominant role of the U. S. dollar in the international monetary system. To curb further rapid debt growth and secure long-run fiscal sustainability, the U. S. needs to broaden tax revenue sources and restructure its tax system. The paper further demonstrates, based on fiscal revenue potential, growth effects, administrative efficiency and international practical experience, that introducing a value-added tax (VAT) in a timely manner serves as a core reform pathway for the United States to address its current fiscal predicament. To overcome existing fiscal institutional constraints and political resistance and to advance the implementation of VAT reform, the U. S. needs to build social consensus, balance short-term economic performance and intergenerational equity, and draw on mature and professional technical governance models. Lastly, this paper examines the implications of the U. S. fiscal and debt challenges for China, pointing out that China's central government still has ample room for sustainable debt expansion and that, under the premise of increasing government social spending, the current state may allow for a moderate increase in debt issuance.