The U.S. national debt reached a record $32 trillion after Congress agreed to lift the debt ceiling once again after a months-long standoff over spending cuts.
The new level was reached nine years earlier than the U.S. treasury had predicted, due to massive spending programs launched during the COVID War to pay health care costs, keep businesses afloat, and give spending cash to households.
Lawmakers’ recent bargain to raise the debt ceiling reduced federal spending by only $1.5 trillion over 10 years, not an amount that will notably impact the rising tide of IOUs. The agreement also holds any increase in spending to 1 percent in the next fiscal year.
In the budget negotiations, any prospects of raising taxes or cutting spending on the military, Medicare, or Social Security were ruled out.
The steadily rising debt sets the stage for another budget battle. A new federal budget is due to take effect 1 October. Failure to agree on a budget by then would again risk a government default that would likely trigger a global financial crisis.
The House of Representatives’ budget committee is now considering agencies’ spending requests for the next fiscal year and is cutting allotments below what the recent budget deal allows.
At the same time, House Republicans have proposed another round of tax cuts for households and businesses, while shrinking energy tax credits.
The nonprofit Committee for a Responsible Federal Budget estimates the new cuts would add $1.1 trillion to the debt over ten years.
“As we race past $32 trillion with no end in sight, it’s well past time to address the fundamental drivers of our debt, which are mandatory spending growth and the lack of sufficient revenues to fund it,” Michael Peterson, CEO of the Peter G. Peterson Foundation, said in a statement.
The foundation promotes restraint in federal borrowing and spending.
If current trends continue, the U.S. debt will add another $127 trillion by 2053, at which point interest payments would consume 40 percent of the federal budget, the foundation predicted.
TREND FORECAST: The Fed’s rising interest rates mean higher debt payments, forcing either more borrowing or deep spending cuts. Guess which one Congress is likely to choose.
The last balanced federal budgets were enacted in the fiscal years from 1998 through 2001. They resulted from a combination of spending cuts to welfare and other programs, which made Democrats howl, and tax increases.
The tax hikes so incensed Republicans that they campaigned against Democrats who voted for them and took back the House majority in 1994.
Because both parties have become even more entrenched in their extremes since then, reaching a similar compromise embracing tax increases and spending cuts is not possible through 2024, absent an unexpected crisis.
Given present circumstances, we also do not foresee a Congress being elected next year that would yield enough legislators to compromise to take meaningful steps toward a balanced budget.