US on pace to grow debt $19T by ’32
CBO also warning of possible default between July-Sept.
WASHINGTON — The United States is on track to add nearly $19 trillion to its national debt over the next decade, $3 trillion more than previously forecast, as a result of rising costs for interest payments, veterans’ health care, retiree benefits and the military, the Congressional Budget Office said Wednesday.
The new forecasts, released Wednesday afternoon, project a $1.4 trillion gap this year between what the government spends and what it takes in from tax revenues. Over the next decade, deficits will average $2 trillion annually, as tax receipts fail to keep pace with the rising costs of Social Security and Medicare benefits for retiring baby boomers.
To put those numbers in context, the total amount of debt held by the public will equal the total annual output of the U.S. economy in 2024, rising to 118% of the economy by 2033 — more than $46.4 trillion.
Congress’ nonpartisan budget scorekeeper now projects that the U.S. economy will barely grow this year, after adjusting for inflation, and that the unemployment rate will rise above 5%, before growth re-accelerates next year. It attributes the slowdown in growth to the Federal Reserve’s campaign to tame inflation.
The projections could supercharge a partisan debate between President Joe Biden and House Republicans over taxes, spending and the nation’s debt limit. Republicans are refusing to raise the limit, which caps the total amount of debt that the federal government may issue, unless Biden agrees to steep but unspecified spending
cuts. That refusal threatens to set off a financial crisis and recession if the government is unable to pay all of its bills on time.
Raising the stakes of that standoff, the budget office said in a separate report on Wednesday that such a crisis could occur between July and September — and possibly even earlier — if lawmakers do not agree to raise the $31.4 trillion limit, which the government technically hit last month.
Biden on Wednesday said Republican policies would blow up the national debt by $3 trillion over 10 years, taking direct aim at GOP lawmakers who say their priority is a balancing the federal budget.
The president said his budget, which is set to be released March 9, would protect Social Security and
Medicare from cuts, while reducing the national debt by $2 trillion over a decade. One key driver of Biden’s planned deficit reduction appears to be his willingness to increase taxes on the wealthiest U.S. households.
“I want to reward work, not just wealth,” Biden told union workers gathered in Lanham, Maryland.
While Republican lawmakers have blamed Biden and Democrats for the rising deficits, the report makes clear that bipartisan legislation — and the Fed’s interest rate increases — are to blame for the jump in debt projections.
Newly enacted legislation in the past nine months will add about $1.5 trillion to cumulative deficits over the next decade, the budget office said. More than half that increase comes from
a single law: an expansion of health care benefits for military veterans who were exposed to toxic burn pits. That bill passed overwhelmingly in the House and Senate, with majorities of Republicans in both chambers voting yes. Another $550 billion in additional deficits is attributable to increased military spending, which also has strong bipartisan support.
In contrast, the budget office said Biden’s signature climate, tax and health care bill, which passed with only Democratic votes, would modestly reduce deficits over the next decade. That’s because the bill’s spending and tax credits were more than offset by its tax increases on corporations and high earners, along with its efforts to reduce the government’s spending on prescription
drugs for retirees.
The report also showed the degree to which the Fed’s campaign to tame high inflation, by quickly and sharply raising interest rates, will drive up federal borrowing costs in the coming years. The Fed has raised rates to a range of 4.5% to 4.75% from near zero a year ago and is expected to continue increasing borrowing costs over the next few months.
Since the budget office last issued forecasts in May, the government’s short- and long-term borrowing costs have grown significantly. The budget office now predicts that federal interest costs will total $10.4 trillion over the next decade, up from $8 trillion in May. Those costs will be partially offset by about $1 trillion in increased tax revenues that stem from high
inflation driving up nominal incomes for workers.
America’s $31.4 trillion national debt is the product of policy choices and economic shocks, largely since the turn of the century, when the federal government last spent less money than it received in tax revenues.
Tax cuts signed into law by Presidents George W. Bush, Barack Obama and Donald Trump reduced government revenues. Wars in Iraq and Afghanistan started under Bush were not offset by tax increases.
Obama, Trump and Biden signed trillions of dollars of emergency spending to combat the 2008 financial crisis and the 2020 pandemic recession.