The United States is on track to add trillions of dollars to its national debt over the next decade by borrowing money faster than previously expected, at a time when major legislative battles over taxes and spending loom.
The Congressional Budget Office said Tuesday that the U.S. national debt is expected to exceed $56 trillion by 2034 as rising spending and interest expenses outpace tax revenues. The rising costs of Social Security and Medicare continue to strain the country’s finances, along with rising interest rates that have made it more expensive for the federal government to borrow huge sums of money.
As a result, the United States is expected to continue running large budget deficits, which is the gap between what America spends and what it receives from taxes and other revenues. The budget deficit in 2024 is expected to be $1.9 trillion, up from a forecast earlier this year of $1.6 trillion. Over the next decade, the annual deficit is expected to rise to $2.9 trillion by 2034. In terms of the economy, national debt will account for 122 percent of gross domestic product in 2034, up from 99 percent in 2024.
The new forecasts come as lawmakers prepare for a major tax and spending fight. Most of Trump’s 2017 tax cuts expire in 2025, forcing lawmakers to decide whether to extend them and, if so, how to pay for them. The USA also has to deal again with a legal limit on borrowing. Congress agreed last year to suspend the debt limit and allow the federal government to continue borrowing until next January.
These battles over taxes and spending will come at a time when the country’s fiscal situation is becoming increasingly dire. An aging population continues to strain America’s retirement and pension programs, which face long-term deficits that could ultimately lead to reductions in pension and health insurance benefits.
Both Democrats and Republicans have expressed concern about the national debt as inflation and interest rates have skyrocketed in recent years, but spending has been difficult to contain. The CBO report assumes the 2017 tax cuts will not be extended, but that is highly unlikely. President Biden has said he will expand some of the tax cuts, including those for low- and middle-income earners; and former President Donald J. Trump has said he will extend them all if he wins in November. A full expansion of tax cuts could cost about $5 trillion over 10 years.
The larger projected deficits were largely due to the Biden administration’s decision to cancel more than $100 billion in student loan debt, the cost of new aid packages to Ukraine and Israel, and higher-than-expected Medicaid spending.
The CBO also said an agreement by lawmakers, which Republicans insisted on, to claw back $20 billion from the Internal Revenue Service would reduce corporate and individual income tax revenue by about $32 billion by 2034. This assumption is based on the expectation that the IRS money would be used to combat tax fraud, which would result in more federal revenue.
The White House blamed the red ink on Trump’s tax cuts and warned Tuesday that Republicans would only move forward if they control Washington
“Republican officials are already planning to expand the deficit even further in 2025 by paying taxes to companies that keep prices high even as inflation falls,” said Andrew Bates, a White House spokesman.
High interest rates also make it harder for the US to manage its debt burden. The budget office forecasts annual interest costs will rise from $892 billion this year to $1.7 trillion in 2034. At that point, the US would spend about as much on interest payments as it does on Medicare.
“The deleterious effects of higher interest rates, which result in higher interest costs on an enormous existing debt burden, continue, leading to additional borrowing,” said Michael Peterson, executive director of the Peter G. Peterson Foundation, which advocates for fiscal restraint. “It’s the definition of unsustainable.”
Sen. Chuck Grassley of Iowa, the top Republican on the Senate Budget Committee, said Mr. Biden was responsible for high borrowing costs and called for spending cuts.
“The Biden administration has imposed inflationary conditions and astronomical interest rates on generations of Americans,” Grassley said.
The Budget Office said one change in the American economy in recent years is actually helping to reduce deficits and debt over time: an increase in immigration. That’s because new immigrants are expected to pay nearly $1 trillion more in taxes than they consume in government benefits.
The office said the United States is on track to admit about 8.7 million more immigrants from 2021 to 2026 than historical trends would predict. They are expected to pay taxes that increase federal revenue by $1.2 trillion over the course of a decade, while consuming about $300 billion in federal benefits — primarily in the form of federal subsidies for adult health insurance and children.
The costs and benefits of immigration remain a contentious political issue in the United States. The Biden administration on Tuesday announced new protections for immigrants who have lived in the U.S. illegally but are married to American citizens, protecting them from deportation and allowing them to work legally.
Jim Tankersley contributed reporting.
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2024-06-18 18:56:06
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