The gross national debt exceeded $32 trillion for the first time on Friday, underscoring the country’s unsettling fiscal trajectory as Washington gears up for another fight over government spending.
A Treasury Department report noted the milestone weeks after Congress agreed to suspend the nation’s statutory debt limit, ending a monthslong standoff.
The $32 trillion mark arrived nine years sooner than prepandemic forecasts had projected, reflecting the trillions of dollars of emergency spending to address Covid-19’s impact along with a run of sluggish economic growth.
Republicans and Democrats have expressed concern about the nation’s debt, but neither party has shown an appetite to tackle its biggest drivers, such as spending on Social Security and Medicare.
The recent bipartisan agreement suspending the debt limit for two years cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade even after newly passed spending cuts are taken into account.
Mark Zandi, the chief economist of Moody’s Analytics, said during the standoff in May that spending cuts proposed by lawmakers failed to address the costs of social safety net programs. While avoiding a default would prevent an immediate crisis, he said, the ballooning debt is a persistent problem that needs to be addressed.
“The nation’s daunting long-term fiscal challenges remain,” Mr. Zandi said.
This week, the House Appropriations Committee began considering its next spending bills and, to appease the Republican majority’s ultraconservative wing, signaled that it would fund federal agencies at levels lower than President Biden and Speaker Kevin McCarthy had agreed to.
A failure to pass and reconcile House and Senate bills by Oct. 1 could lead to a government shutdown. And if the individual bills are not approved by the end of the year, a 1 percent automatic cut will take effect.
At the same time, House Republicans started considering a new round of tax cuts this week. The bill would expand the standard deduction for individual taxpayers and some business tax benefits that are intended to promote investment while curbing energy tax credits. The Committee for a Responsible Federal Budget, which advocates 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 on Congress to form a bipartisan fiscal commission to tackle the long-term drivers of the national debt.
“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,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which promotes deficit reduction.
The Peterson Foundation expressed concern about projections that show the United States adding $127 trillion in debt over the next 30 years and interest costs consuming nearly 40 percent of all federal revenues by 2053.
Treasury Secretary Janet L. Yellen defended the Biden administration’s handling of the nation’s finances at a House Financial Services Committee hearing this week, noting that the White House had released a budget this year reducing the deficit by $3 trillion. She also told the panel that interest rates were likely to decline over the medium term, making the debt burden more manageable.
The Treasury secretary suggested that tax policies promoted by Republicans would worsen the fiscal situation.
“They would benefit wealthy individuals and corporations and do nothing for working families,” Ms. Yellen said. “It’s not paid for, and it would exacerbate the debt.”
Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. He previously worked for The Financial Times and The Economist. @arappeport
Source: Read Full Article