These charts should alarm Congress, Biden
In 2023 with the economy humming along the federal deficit is spiking to $2 trillion, according to calculations from the Committee for a Responsible Federal Budget, a watchdog group. That’s double last year’s deficit. The deficit has been this high and surged this fast only during global crises such as World War II or the covid-19 pandemic. This isn’t supposed to happen in a good economic year, in which tax revenue rises and fewer people need government aid.
The big problem is rising interest costs. The U.S. government must pay more to borrow money now than it has in recent years. The 10-year Treasury bond has an interest rate of about 4.3 percent, up from about 3.3 percent a year ago. The 3-month Treasury bill yields are even more eye-popping: 5.5 percent now vs. 3 percent a year ago. It’s tempting to write this off as a fluke. The Federal Reserve has aggressively hiked interest rates to fight inflation. In fact, this is warning of what’s ahead. The Fed is unlikely to slash rates back to 2021 levels anytime soon, and the U.S. government is set to borrow massively in the years ahead. Interest costs will likely double in the next decade.
Interest costs aren’t the only budget whammy this year. Tax receipts are coming in lower than expected despite strong corporate profits and low unemployment. It’s especially noticeable in capital gains. Home sales are down, and poor 2022 stock market performance (the worst since 2008) left many with losses. Federal spending is also up from last year as inflation caused Social Security and Medicare costs to rise, and as President Biden’s green energy plan and bipartisan industrial policy and infrastructure programs ramp up.
This can’t go on unchecked. Federal debt is on track to hit a record level by 2029, meaning it will be higher as a percentage of the U.S. economy than even World War II’S peaks. And it will only get uglier from there if politicians continue to ignore it.
For now, there are many eager buyers of U.S. debt. But as recently as May, the Congressional Budget Office wasn’t predicting the deficit would top $2 trillion until 2030. As the government borrows more money, interest costs swell. That means less money for anything else: defense, education, roads and other priorities. It’s also harmful to the wider economy as more investor money goes to support basic government functions instead of funding start-ups and existing business growth.
Getting the United States on a better fiscal track requires significant, broadbased change that includes tax increases, spending moderation and modest reforms to Medicare and Social Security. We know it’s hard. We spent months coming up with our own debt plan this year, and we received many angry letters. But delaying action means the problem gets worse and the solutions become more painful.