The CBO report claims the Inflation Reduction Act will account for about 3 trillion of it
Traditionally, CBO reports are boring and are met with a casual yawn – but not this time.
That’s partially because the report has never been so bleak for our country’s financial future. And while it’s true that government bean counters have sounded these alarm bells several times in the past, this time the amount of debt is so astronomical when compared to a percentage of Gross Domestic Product (GDP), as to take the metric to an entirely new level.
That’s why some lawmakers are growing jittery about just how much red ink they’re seeing when they couple that with this summer’s debt ceiling collision – the sheer level of debt that the Congressional Budget Office (CBO) projects that the U.S. will carry in the next few years.
The current debt the U.S. owes is $31.4 trillion. But the CBO estimates the federal government will accumulate a staggering additional $19 trillion in debt over the next decade. New laws passed by Congress since last year will account for about $1.5 trillion of that debt and the CBO report declares that the Inflation Reduction Act (IRA) and the infrastructure bill will tack on an additional $3 trillion in debt which wasn’t included in the financial disclosures when either one of those massive fiscal programs were passed.
Tax cuts approved by Congressional Republicans in 2017 didn’t help either, however, tax cuts almost always pay for themselves by stimulating economic growth. However, no one expected COVID or sky-high inflation a few years after the tax reductions.
“The fiscal trajectory is challenging,” said CBO Director Phil Swagel about the debt spike over the past few months. “It’s a mix of things. Some increased benefits for veterans were a big part of that. There are some subsidies for chip manufacturers and some other things. So that’s legislation. There’s also the economy. We had much higher inflation.”
A rapidly growing portion of what Washington terms “mandatory spending” (meaning money that the Treasury is compelled to spend without an annual appropriation from Congress) are interest on the federal debt. Interest rates are higher. Inflation is staggeringly higher.
The Federal Reserve raised interest rates up to 4.75 percent this year from practically zero. That means the government is paying more to borrow money.
“That translates into higher payments. A higher cost for the government and a bigger deficit,” said Swagel.
The CBO predicted that increased interest will add another $10.4 trillion to the debt over the next ten years – a figure was hanging around $8 trillion just a year ago.
It was dangerous for the federal government when the debt began climbing decades ago. But it really took off after 9/11 and the wars in Iraq and Afghanistan. The financial turndown of 2008 didn’t help matters. We mentioned the tax cuts. And the profligate spending on COVID catapulted projected debt to frightening levels.
“Our projections suggest that changes in fiscal policy must be made to address the rising cost of interest and mitigate other adverse consequences of high and rising debt,” said Swagel.
Keep in mind that the CBO is restricted in its analysis to what it knows now.
The CBO cannot forecast another 9/11. Another war. Another 2008-esque financial meltdown. Another pandemic. Or even another gigantic spending bill.
Moreover, the CBO scores America’s financial conditions based on “current law.” CBO economists aren’t soothsayers. They must rely on what’s on the books right now to construct their baselines and anticipate revenue projections and deficits.
However, there seems to be one constant. Federal spending usually grows. And so does the national debt. The trend over the past two decades has seen geometric increases in that category. So it’s hard to see what could alter that trajectory.
The conversation right now focuses on the need to raise the debt ceiling in the summertime – forestalling a catastrophic federal default. The debt ceiling fights of 2011 and 2013 yielded minor fiscal agreements to cushion the looming economic debt crisis. House Speaker Kevin McCarthy, R-Calif., suggests that some sort of accord is necessary to raise the debt ceiling this year.
However, those previous agreements offer weak fiscal tea to counter the tsunami of debt which is now crashing down on the Washington shores. An agreement to fundamentally recalibrate the fiscal orientation would have to dwarf the 2011 and 2013 pacts. And it’s unclear if McCarthy, other lawmakers, and President Biden possess the political prowess to make any difference.
That’s partly why the debt continues to skyrocket. There hasn’t been a major effort to curb the national debt in decades. Former House Speaker Newt Gingrich, R-Ga., and former President Bill Clinton secured a package that put the nation on a sound footing in the mid-1990s. But things have headed in the wrong direction ever since.
Republicans often tout prospects of “balancing the budget.” Such a gambit would require slashing $7 trillion in spending. That would eliminate most entitlements and hollow out the military. All are the most expensive areas of current budgeting.
Swagel is candid about those prospects.
“It’s challenging to balance the budget. And then it’s challenging to balance the budget by setting part of the budget off limits. It’s arithmetically possible. But quite difficult.”
At this point, deficits will jump by $2 trillion each year. The costs of Social Security and Medicare will rise as more baby boomers retire. Keep in mind that Mr. Biden and McCarthy have specifically ruled out touching Social Security and Medicare. However, unsaid in that conversation is that Medicaid could be on the table.
As an added piece of good news, the combined debt is expected to climb to a mind-numbing 118% of the annual U.S. economic output each year by 2033.
Chief Political Correspondent Kurt Dillon compiled and wrote this article – Because the Truth Matters!
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