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National debt will exceed $50 trillion by 2034, budget watchdog estimates

3 weeks ago 22

As lawmakers grapple with increasing defense demands and spending on social safety net programs, the Congressional Budget Office projected Tuesday that the federal debt will equal 122 percent of the United States’ annual economic output by 2034, far surpassing the high set in the aftermath of World War II.

The deficit will swell to $1.9 trillion this fiscal year and keep growing until the overall national debt hits $50.7 trillion a decade from now, Congress’s nonpartisan bookkeeper said in its latest report. The group revised its forecast from four months ago, when it projected that the debt would reach $48.3 trillion in 2034, and 116 percent of economic output.

The new figures add to the urgency facing policymakers in 2025 — and on the campaign trail — to tackle the nation’s financial health. Next year, vast portions of the tax code are set to expire, potentially forcing a steep tax hike on individuals and families. Congress suspended the debt limit in 2023, but that, too, will expire next year, setting up a showdown between the two parties over federal spending.

And Medicare and Social Security are running low on funds, which could force a benefit cut for tens of millions of Americans just as the national debt crescendos.

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The debt is a bipartisan problem: Spending shot up under both President Biden and former president Donald Trump. And Trump’s 2017 tax cuts, the ones that are set to expire next year, added nearly $2 trillion to the existing debt, according to a nonpartisan estimate. Trump has proposed extending all of those cuts, which could add trillions more to the debt, and Biden also wants to keep the lower rates for people who earn less than $400,000, as well as new social spending paid for by allowing some of the tax cuts to expire.

“At a moment we should be looking at what spending to reduce and how to increase revenue, the national agenda is full of conversation about huge new tax cuts and major spending initiatives,” Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, told The Washington Post. “The risks that we run from this growing mountain of debt run the gamut from slower economic growth to lower incomes, an inability to respond to emergencies and a weaker role in the world. Nothing could be more urgent, but none of our leaders have a plan to address this glaring problem.”

The debt burden could present risks in bond markets as creditors look increasingly skeptically at the government’s ability to make good on its ballooning borrowing, experts say. A high debt balance would probably also keep federal interest rates high, forcing Congress to divert a significant amount of tax revenue to debt service.

The U.S. has $34.7 trillion of debt, according to the Treasury, the vast majority of which is held by the public through bonds and other borrowing instruments. The cost of that debt keeps climbing as the federal government spends more — and must borrow to afford it. The rest of the debt is held by other government programs, such as Social Security and Medicare, that have taken in more money than they’ve paid out.

Already in the 2024 fiscal year, which ends Sept. 30, interest payments are set to eclipse the size of the United States’ massive defense spending. Rates shot up over the past several years as the Federal Reserve has tried to wrestle inflation under control.

“The harmful effects of higher interest rates fueling higher interest costs on a huge existing debt load are continuing, and leading to additional borrowing. It’s the definition of unsustainable,” Michael A. Peterson, CEO of the nonpartisan Peter G. Peterson Foundation, a budget-focused think tank, said in a statement.

The expected deficit grew 27 percent from CBO’s last projection in February, mostly because of new spending laws passed after that report came out. Since then, lawmakers have enacted $1.7 trillion of annual spending legislation, averting an automatic trigger that would have forced a 1 percent cut across all federal spending if Congress hadn’t passed full-year appropriations laws.

CBO factored that 1 percent cut into its February projections, because the full-year spending laws weren’t yet adopted.

But since then, Congress and Biden have been on a spending spree. Besides the annual appropriations, lawmakers also approved a $95 billion foreign aid bill to support Ukraine, Israel and Taiwan and make investments in the U.S. industrial base, and Biden announced plans to forgive billions of dollars in student loans.

Other technical spending and revenue measures played a part in the debt increase. Federal banking regulators have been slow to recover payments from recently failed institutions. And projected Medicare outlays increased by $50 billion, according to the CBO, as the aging U.S. population continues to draw down social safety net trust funds.

Much of the recent debt spike is tied to pandemic emergency spending and Trump’s 2017 tax cuts. Early pandemic stimulus legislation and executive orders added $3.6 trillion to the debt, according to the nonpartisan Committee for a Responsible Federal Budget.

The Tax Cuts and Jobs Act, Trump’s 2017 law, lowered rates for individuals of almost all income levels, though it cut taxes most for the highest earners, and slashed the maximum corporate tax rate from 35 percent to 21 percent. It added $1.9 trillion to the debt, according to the group.

Many of those cuts are set to expire next year, and extending them could add almost $5 trillion more to the long-term debt total, CBO projected last month. Trump and some congressional Republicans are discussing lowering the corporate tax rate further if the GOP wins control of Washington, which could add $1 trillion to the debt.

The CBO report did include a small silver lining for the country’s financial well-being. A surge in immigration exceeding federal projections will increase economic output by $8.9 trillion, or 2.4 percent, in the next decade, according to the forecast, and will lower the deficit by $900 billion. That’s because noncitizens contribute payroll taxes that fund Social Security and Medicare and other social safety net programs, but they’re ineligible to receive benefits.

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