17-6-2023 (WASHINGTON) The United States’ gross national debt surpassed $32 trillion for the first time on Friday, highlighting the country’s concerning fiscal trajectory as Washington prepares for another battle over government spending.
In a report released by the Treasury Department, the milestone was noted just weeks after Congress agreed to suspend the nation’s statutory debt limit, ending a months-long standoff.
The $32 trillion mark arrived nine years earlier than pre-pandemic forecasts had predicted, reflecting the trillions of dollars spent on emergency measures to address the impact of COVID-19, coupled with a period of sluggish economic growth.
While both Republicans and Democrats have expressed concerns about the nation’s debt, neither party has shown a willingness to address the major factors driving it, such as spending on Social Security and Medicare.
The recent bipartisan agreement to suspend the debt limit for two years includes federal spending cuts of $1.5 trillion over a decade, according to the Congressional Budget Office. This is achieved by essentially freezing some funding that was projected to increase next year and then limiting spending growth to 1% in 2025. However, even with these newly passed spending cuts taken into account, the debt is expected to exceed $50 trillion by the end of the decade.
Mark Zandi, chief economist of Moody’s Analytics, warned during the standoff in May that the proposed spending cuts failed to address the costs of social safety-net programs. While avoiding an immediate crisis by preventing a default, Zandi stressed that the escalating debt remains an ongoing problem that needs to be tackled.
“The nation’s challenging long-term fiscal issues persist,” Zandi stated.
This week, the House Appropriations Committee began deliberations on its upcoming spending bills. In an attempt to appease the ultraconservative wing of the Republican majority, the committee indicated that federal agencies would be funded at lower levels than those agreed upon by President Joe Biden and Speaker Kevin McCarthy, R-Calif.
Failure to pass and reconcile the House and Senate bills by October 1 could result in a government shutdown. Additionally, if the individual bills are not approved by the end of the year, an automatic 1% cut will come into effect.
Simultaneously, House Republicans are considering a new round of tax cuts this week. The proposed bill would expand the standard deduction for individual taxpayers and offer certain business tax benefits to promote investment while curtailing energy tax credits. The Committee for a Responsible Federal Budget, an advocate for lower spending levels, estimates that the proposed legislation would cost $80 billion over a decade or $1.1 trillion if the measures were made permanent.
Some have called for the formation of a bipartisan fiscal commission in Congress to address the long-term drivers of the national debt.
“As we exceed $32 trillion with no end in sight, it is high time we address the fundamental causes of our debt, which include the growth of mandatory spending and insufficient revenues to fund it,” said Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for deficit reduction.
The Peterson Foundation expressed concern about projections that indicate the United States will accumulate $127 trillion in debt over the next 30 years, with interest costs consuming nearly 40% of all federal revenues by 2053.
During a House Financial Services Committee hearing this week, Treasury Secretary Janet Yellen defended the Biden administration’s handling of the nation’s finances. She pointed out that the White House had released a budget this year that reduces the deficit by $3 trillion. Yellen also informed the committee that interest rates are likely to decrease in the medium term, making the debt burden more manageable.
Yellen suggested that the tax policies promoted by Republicans would worsen the fiscal situation.
“They would benefit wealthy individuals and corporations and do nothing for working families,” she stated. “It is not paid for, and it would exacerbate the debt.”
