$19T IN NEW DEBT LIKELY OVER 10 YEARS
Debt limit crisis could hit as soon as July, officials say
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, the result of rising costs for interest payments, veterans’ health care, retiree benefits and the military, the Congressional Budget Office said Wednesday.
The new forecasts project a $1.4 trillion gap this year between what the government spends and what it takes in from tax revenues. Over the following 10 years, 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 percent of the economy by 2033.
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 percent, before growth re-accelerates next year. It attributes the slowdown in growth to the Federal Reserve’s campaign to tame inflation by raising interest rates, which is aimed at cooling the economy and the labor market.
The updated projections could supercharge a partisan debate between President Joe Biden and Republicans over taxes, spending and the nation’s debt limit. Republican lawmakers are refusing to raise the limit — which caps the total amount of money that the federal government is authorized to borrow to fulfill its financial obligations — unless Biden agrees to steep but unspecified spending cuts. Biden has repeatedly said that he will not negotiate
over raising the borrowing cap, which allows the government to pay for expenses that Congress has already authorized.
Republican resistance to raising the limit threatens to set off a financial crisis and recession if the government is unable to pay all of its bills on time.
The budget office said in a separate report on Wednesday that such a crisis could occur as soon as July — and possibly even earlier — if lawmakers
do not agree to raise the $31.4 trillion limit, which the government technically hit last month.
“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations,” the CBO said. “As a result, the government would have to delay making payments for some activities, default on its debt obligations or both.”
There were no indications
in the report that the size of the federal debt was dragging on economic growth or would any time soon. But officials warned that, in the longer run, policymakers would need to change the nation’s fiscal course, which could come from raising taxes, cutting spending or both.
“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” the director of the budget office, Phillip L. Swagel, wrote in a letter accompanying the report.
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.
The new report confirmed what analysts have predicted for years: that the costs of providing Social Security and Medicare benefits to retiring baby boomers are set to grow rapidly in the decade to come.
“The warning is that the fiscal trajectory is unsustainable,” Swagel told reporters at a briefing Wednesday afternoon.
The budget office director also noted that it would be difficult for lawmakers to balance the budget in 10 years without making changes to Social Security and Medicare.
“It’s mathematically possible,” Swagel said, adding that “it’s very, very challenging.”