The United States is on track to add nearly $19 trillion to its national debt over the next decade as the rising costs of an aging population and higher interest expenses continue to weigh on the nation’s fiscal outlook, it said Wednesday. the Congressional Budget Office, which is nonpartisan.
But the report did offer some relief: Recently enacted legislation to curb federal spending and a U.S. economy that has been growing faster than expected are making the fiscal outlook a little less bleak. Annual deficits over the next decade are 7 percent smaller than the $20.3 trillion the budget office forecast last year.
That decline reflects several conflicting forces. An agreement President Biden and congressional Republicans reached last year to limit discretionary spending for two years reduces deficits over the decade. So does an increase of 5.2 million new workers in the workforce, most of them immigrants.
But those deficit declines are partly offset by an increase in the estimated budget costs of Biden’s clean energy agenda, an aging U.S. population and higher interest rates on the national debt.
Budget Office Director Phillip L. Swagel said that even with deficits declining, the nation was still on track to accumulate more debt as a share of its total economic output in 2034 than at any time in its history.
“The first message of the projections is familiar: that the fiscal trajectory is discouraging,” Swagel said in a briefing with reporters on Wednesday. “On the other hand, it’s a little less bad than our projections from last year.”
The projections for 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 locked in a heated debate over providing more aid to Ukraine and Israel and whether to expand the child tax credit and restore expired tax breaks for businesses. The budget office projected that the annual deficit will grow to $2.6 trillion in 2034 from $1.6 trillion in 2034, adding $18.9 trillion to the national debt over the decade. By then, the debt is expected to exceed $54 trillion.
Interest rates have risen to two-decade highs over the past year, causing borrowing costs to contribute increasingly to the national debt.
From 2024 to 2034, the United States will spend more than $12 trillion on interest costs alone. Starting next year, net interest costs will be higher as a percentage 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 safety net programs like Social Security and Medicare continues to grow even as their trust funds face the prospect of being depleted over the next 10 years.
“Also increasing deficits are two underlying trends: an aging population and growth in federal health care costs per beneficiary,” Swagel said. “Those trends put upward pressure on mandatory spending.”
The national debt is likely to be even higher than the budget office predicts, since its forecast assumes that the 2017 tax cuts that Republicans enacted will expire entirely, even though lawmakers are already considering extending many of them. measures, including lower individual income tax brackets.
For the second time in less than a year, the budget office said it now expected Biden’s efforts to wean the nation off fossil fuels to be more popular with the public (and more expensive for taxpayers) than initially estimated.
Biden’s Inflation Reduction Act of 2022 included the largest incentives in U.S. history to accelerate the development and deployment of energy technologies. Among those incentives were tax breaks for companies that invest in factories to produce wind turbines, solar panels and other clean energy technologies, along with a credit of up to $7,500 for people who buy certain electric vehicles.
The budget office initially projected that those disruptions, and other climate provisions, would add $391 billion to deficits from 2022 to 2031. It now estimates the true cost will be at least double when measured over that same time period.
The change is due in part to the bureau now estimating much stronger demand for energy manufacturing credits than it initially anticipated. It’s also partly the result of another of Biden’s policies: a proposed regulation from the Environmental Protection Agency that aims to ensure that two-thirds of new passenger cars sold in the United States are all-electric by 2032. The bureau hopes that That regulation increases demand. for electric vehicles and reduce the amount of gasoline American drivers consume, which, in turn, will reduce federal revenue from gasoline taxes.
Republican lawmakers were quick to express alarm over the rising debt burden and blame Biden and Democrats, even though both parties have passed spending and tax packages that have increased the nation’s debt.
“The economic damage and unbridled spending caused during Democratic control of Washington, which increased costs for the American people and increased our national debt, brought us to today’s stark reality,” President Mike Johnson said in a statement.
Democrats focused on the more optimistic characterization of the economy and the fact that the deficit was smaller than previously expected.
“Today’s CBO baseline confirms that Democrats’ investments to boost our recovery and promote a stronger economy worked: CBO now projects faster economic growth, lower deficits, and lower unemployment,” said Senator Sheldon Whitehouse of Rhode Island, Democratic chairman of 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 told lawmakers on Tuesday that interest costs remained manageable as a percentage of the overall U.S. economy and noted that Biden had proposed $2.5 trillion in deficit reduction, much of which would come from tax increases and a more rigorous approach. to tax collection.
“We need to be on a fiscally sustainable path, and reducing deficits is critical to ensuring that is the case,” Yellen said, lamenting that lawmakers have not acted on the administration’s deficit reduction plans.
The U.S. gross national debt surpassed $34 trillion last month, and fiscal watchdog groups have been pressing lawmakers to form a fiscal commission that would develop policies to stabilize the debt.
“Today’s CBO projections are the latest loud and clear warning about America’s unsustainable national debt,” Michael A. Peterson, executive director of the Peter G. Peterson Foundation, which promotes deficit reduction, said in a statement. . “There has never been a more urgent time for a bipartisan fiscal commission to recommend solutions that put us on a stronger path.”