The United States is on pace to add nearly $19 trillion to its national debt over the next decade, as the growing costs of an aging population and rising interest costs continue to weigh on the nation’s fiscal outlook, the nonpartisan Congressional Budget Office said Wednesday.
But the report offers some relief: Recently passed legislation to curb federal spending and a U.S. economy that has grown faster than expected make the fiscal situation slightly less bleak. Annual deficits over the next decade are 7 percent lower than the $20.3 trillion forecast last year by the budget office.
This decline reflects several contradictory forces. A deal reached last year by President Biden and congressional Republicans to limit discretionary spending for two years reduces deficits over the decade. Thus, 5.2 million new workers enter the labor market, most of them immigrants.
But those deficit declines are partly offset by an increase in estimated fiscal costs due to Mr. Biden’s clean energy agenda, an aging U.S. population and rising interest rates on the national debt.
Budget Office Director Phillip L. Swagel said that even with falling deficits, the country remained on track to accumulate more debt as a proportion of its total economic output in 2034 than at any other time in his history.
“The first message from the projections is a familiar one: The fiscal trajectory is daunting,” Mr. Swagel said during a briefing with reporters Wednesday. “On the other hand, the situation is a little less bad than we expected last year.”
The projections about the nation’s finances come as Congress faces another deadline next month to agree on federal spending legislation to keep the government running. Lawmakers are also engaged in a heated debate over increasing aid to Ukraine and Israel and whether to expand the child tax credit and restore expired tax breaks. year, adding $18.9 trillion to the national debt over the decade. By then, the debt is expected to exceed $54 trillion.
Interest rates rose to 20-year highs last year, making borrowing costs an increasingly important contributor to the national debt.
From 2024 to 2034, the United States alone will spend more than $12 trillion in interest. Starting next year, net interest costs will account for a larger share of the U.S. economy than at any time since the federal government began keeping records in 1940, according to the budget office.
Spending on welfare programs like Social Security and Medicare continues to grow, even though their trust funds are at risk of depletion over the next 10 years.
“Two underlying trends are also worsening the deficits: the aging population and the growth in federal health care costs per beneficiary,” Mr. Swagel said. “These trends are putting upward pressure on mandatory spending. »
The national debt is likely to be even larger than the budget office projects because its forecast assumes that the 2017 tax cuts passed by Republicans will expire completely, even though lawmakers are already considering extending many measures, including lower personal income tax brackets.
For the second time in less than a year, the budget office said it now expects Mr. Biden’s efforts to wean the country off fossil fuels to be more popular with the public — and more costly for taxpayers – than initially planned.
Mr. Biden’s Inflation Reduction Act of 2022 included the largest incentives in American history to accelerate the development and deployment of energy technologies. Among those incentives were tax breaks for companies investing in factories to produce wind turbines, solar panels and other clean energy technologies, as well as a credit of up to $7,500 for people who buy certain electric vehicles .
The budget office initially projected that these reliefs, along with other climate provisions, would add $391 billion to deficits between 2022 and 2031. It now estimates that the true cost will be at least twice as high when measured on this same window of time.
This change is partly because the bureau now estimates much greater demand for energy production credits than it had initially anticipated. It’s also partly the result of another of Mr. Biden’s policies: a proposed Environmental Protection Agency rule that aims to ensure that two-thirds of new passenger cars sold in the United States will be fully electric by here 2032. The agency expects this regulation to stimulate demand. for electric vehicles and reduces the amount of gasoline consumed by American drivers – which, in turn, will reduce federal revenue from gasoline taxes.
Republican lawmakers were quick to raise concerns about the rising debt burden and blame Mr. Biden and Democrats, despite both parties passing spending and tax measures that have increased the country’s debt.
“The economic damage and out-of-control spending committed during Democratic control of Washington, which increased costs for the American people and ballooned our national debt, have brought us to today’s harsh reality,” said Chairman Mike Johnson in a statement.
Democrats focused on a more optimistic depiction of the economy and that the deficit was smaller than expected.
“Today’s CBO benchmark confirms that Democrats’ investments to jump-start our recovery and promote a stronger economy have paid off: CBO now projects faster economic growth, lower deficits, and lower unemployment,” said Sen. Sheldon Whitehouse of Rhode Island, the Democratic chairman of the CBO. the Senate Budget Committee.
The Biden administration, which will present its next budget proposal next month, has defended its efforts as fiscally — and environmentally — responsible.
Treasury Secretary Janet L. Yellen said Tuesday that interest costs remain manageable as a share of the overall U.S. economy and noted that Mr. Biden has proposed $2.5 trillion in deficit reduction , much of which would come from tax increases and a tougher approach to deficit reduction. collection of taxes.
“We need to be on a sustainable fiscal path, and reducing deficits is critical to ensuring that that is the case,” Yellen said, lamenting that lawmakers have not followed through on the government’s deficit reduction plans. ‘administration.
The U.S. gross national debt topped $34 trillion last month, and fiscal watchdog groups have pressed lawmakers to form a budget commission to develop policies to stabilize the debt.
“Today’s CBO projections are the latest loud and clear warning about America’s unsustainable national debt,” said Michael A. Peterson, executive director of the Peter G. Peterson Foundation, which promotes debt reduction. deficit, in a press release. “There has never been a more urgent time for a bipartisan budget commission to recommend solutions to put us on a stronger path. »