July 14, 2024

U.S. National Debt on Course to Hit $56 Trillion in a Decade

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Rising Debt Crisis

The United States is on track to add trillions to its national debt over the next decade, borrowing money more quickly than expected. This alarming trend comes as major legislative battles loom over taxes and spending.

Projection by the Congressional Budget Office

On Tuesday, the Congressional Budget Office (CBO) reported that the U.S. national debt is projected to exceed $56 trillion by 2034. This surge is driven by rising spending and interest expenses that outpace tax revenues. The increasing costs of Social Security and Medicare and higher interest rates have significantly raised the federal government’s costs.

Persistent Budget Deficits

The U.S. is expected to continue running large budget deficits, the gap between what the country spends and what it receives in taxes and other revenue. In 2024, the budget deficit is projected to be $1.9 trillion, up from an earlier forecast of $1.6 trillion. Over the next decade, the annual deficit is expected to swell to $2.9 trillion by 2034. By then, debt held by the public will be 122 percent of the gross domestic product, up from 99 percent in 2024.

Upcoming Legislative Battles

Lawmakers are preparing for intense debates over taxes and spending. Most of the 2017 Trump tax cuts are set to expire in 2025, forcing a decision on whether to renew them and how to fund them. The U.S. must also address the statutory cap on its borrowing limit, which Congress suspended last year until January.

Grim Fiscal Backdrop

The country’s ficountry’sook is increasingly dire. An aging population continues to strain Social Security and Medicare, which face long-term shortfalls that could reduce benefits. Democrats and Republicans have expressed concerns about the national debt as inflation and interest rates have risen, but controlling spending has been challenging.

Impact of Tax Cuts

The CBO report assumes the 2017 tax cuts will not be extended, which is unlikely. President Biden has indicated he will expand some of the cuts for low- and middle-income earners, while former President Donald Trump has pledged to extend all of them if he wins in November. Extending the tax cuts could add about $5 trillion to the deficit over the next decade.

Key Drivers of Deficit Growth

The projected deficits are also driven by the Biden administration’s cancellation of over $100 billion in student loan debt, new aid packages for Ukraine and Israel, and higher-than-expected Medicaid outlays. Additionally, a Republican-insisted agreement to claw back $20 billion from the IRS is expected to reduce tax revenues by about $32 billion through 2034.

Rising Interest Costs

High interest rates make it harder for the U.S. to manage its debt. The CBO predicts annual interest costs will rise to $1.7 trillion by 2034, up from $892 billion this year. At that point, interest payments will be nearly as large as spending on Medicare.

The Warning from Experts

Michael Peterson, CEO of the Peter G. Peterson Foundation, which promotes fiscal restraint, warned, “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.”

Immigration” ‘Immigration’spact

One positive development is the recent surge in immigration, which is expected to help reduce deficits and debt over time. The CBO notes that new immigrant workers will pay nearly $1 trillion more in taxes than they will consume in government benefits. From 2021 through 2026, the U.S. is expected to add about 8.7 million more immigrants than historical trends predict, generating $1.2 trillion in federal revenues over a decade while consuming about $300 billion in federal benefits.

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