The United States is on track to add nearly $19 trillion to its national debt over the next decade as the rising costs of an aging population and higher interest spending continue to weigh on the country’s fiscal outlook, the nonpartisan Congressional Budget Office said Wednesday.
But the report did provide some relief: Recent legislation to rein in federal spending and a U.S. economy that has grown faster than expected mean the fiscal picture is a little less bleak. Annual deficits over the next decade are 7 percent smaller than the $20.3 trillion the budget office forecast last year.
This decline reflects several conflicting forces. An agreement President Biden and congressional Republicans reached last year to limit discretionary spending for two years is reducing deficits over the decade. This also applies to the increase of 5.2 million new workers, most of whom are immigrants.
However, these deficit declines will be partially offset by increases in estimated budget costs from Biden’s clean energy agenda, an aging U.S. population and higher interest rates on the national debt.
Budget Office Director Phillip L. Swagel said that despite the decline in deficits, the country remains on track to accumulate more debt as a share of total economic output in 2034 than at any time in its history.
“The first message from the forecasts is known: that fiscal developments are discouraging,” Mr. Swagel said at a briefing with reporters on Wednesday. “On the other hand, it is a little less severe than in our forecasts last year.”
The forecasts for the country’s finances come as Congress faces another deadline next month to agree on federal spending legislation to keep the government running. Lawmakers are also embroiled in a heated debate over providing more aid to Ukraine and Israel and whether to expand the child tax credit and restore expired corporate tax breaks. The Budget Office projected the annual deficit to rise from $1.6 trillion in 2034 to $2.6 trillion this year, increasing the national debt by $18.9 trillion over the decade. By then, debt is expected to exceed $54 trillion.
Interest rates rose last year to their highest level in two decades, making borrowing costs an increasingly significant contributor to national debt.
From 2024 to 2034, the United States will spend more than $12 trillion on interest costs alone. Starting next year, net interest costs will be larger relative to the U.S. economy than at any time since the federal government began tracking in 1940, the budget office said.
Spending on safety net programs like Social Security and Medicare continues to rise, even as their trust funds are expected to be depleted over the next decade.
“Two underlying trends are also increasing deficits: the aging of the population and the growth of federal health care costs per beneficiary,” Mr. Swagel said. “These trends are putting upward pressure on mandatory spending.”
The national debt is likely to be even higher than the Budget Office forecast because its forecast assumes that tax cuts passed by Republicans in 2017 will expire completely, even though lawmakers are already considering expanding many measures, including lower individual income tax brackets .
For the second time in less than a year, the budget office said it now expects Mr. Biden’s efforts to wean the country off fossil fuels will be more popular with the public — and more expensive for taxpayers — than initially expected.
Mr. Biden’s 2022 Inflation Reduction Act included the largest stimulus in American history to accelerate the development and deployment of energy technologies. Those incentives included tax breaks for companies that invest in factories producing wind turbines, solar panels and other clean energy technologies, as well as a credit of up to $7,500 for people who buy certain electric vehicles.
The Budget Office had initially forecast that these breaks and other climate measures would add $391 billion to the deficit from 2022 to 2031. Now it is assumed that the actual costs measured over the same period will be at least twice as high.
The change is partly due to the agency now estimating much stronger demand for energy production credits than originally expected. This is also partly the result of another of Mr. Biden’s policies: a proposed Environmental Protection Agency regulation that would ensure that two-thirds of new passenger vehicles sold in America will be fully electric by 2032. The office expects this regulation will spur demand for electric vehicles and reduce gasoline consumption by American drivers – which in turn will reduce federal revenue from gasoline taxes.
Republican lawmakers quickly expressed concern about the rising debt burden, blaming Mr. Biden and Democrats, even though both parties have passed spending and tax packages that have increased the country’s debt.
“The economic damage and uncontrolled spending wrought during the Democrats’ control of Washington, which increased costs for the American people and drove up our national debt, brought us to the harsh reality of today,” spokesman Mike Johnson said in an explanation.
Democrats focused on the more positive characterization of the economy and the fact that the deficit was smaller than previously expected.
“CBO’s baseline today confirms that Democrats’ investments to boost our recovery and promote a stronger economy have worked: CBO now forecasts faster economic growth, smaller deficits and lower unemployment,” said Senator Sheldon Whitehouse of Rhode Island, who Democratic chairwoman of the Senate Budget Committee.
The Biden administration, which will unveil its next budget proposal next month, has defended its efforts as fiscally — and environmentally — responsible.
Treasury Secretary Janet L. Yellen told lawmakers on Tuesday that interest costs remain manageable relative to the overall U.S. economy, noting that Mr. Biden has proposed $2.5 trillion in deficit reductions, from much of which would come from tax increases and a stricter approach to tax collection.
“We must be on a fiscally sustainable path, and reducing deficits is critical to ensuring that we are,” Ms. Yellen said, lamenting that lawmakers have failed to implement the administration’s deficit reduction plans .
America’s gross national debt topped $34 trillion last month, and tax regulators have urged lawmakers to form a finance commission to develop measures to stabilize the debt.
“Today’s CBO forecasts are the latest loud and clear warning about America’s unsustainable national debt,” Michael A. Peterson, executive director of the Peter G. Peterson Foundation, which advocates for deficit reduction, said in a statement. “There has never been a more urgent time for a bipartisan Finance Commission to recommend solutions that put us on a stronger path.”
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2024-02-08 05:34:29
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