The United States is on track to add trillions of dollars to its national debt over the next decade, and is borrowing faster than ever before, at a time of major legislative fights over taxes and spending.
The U.S. national debt is likely to top $56 trillion by 2034, as rising spending and interest expenses outpace tax revenues, the Congressional Budget Office said Tuesday. Rising costs for Social Security and Medicare continue to weigh on the nation's finances, as do rising interest rates, making it more expensive for the federal government to borrow large amounts of money.
As a result, the United States is expected to continue to run large budget deficits, which is the difference between the amount the U.S. spends and the amount it takes in through taxes and other revenues. The budget deficit is projected to be $1.9 trillion in 2024, up from a forecast of $1.6 trillion earlier this year. Over the next 10 years, the annual deficit is projected to grow to $2.9 trillion by 2034. As a share of the economy, debt held by the public will be 122 percent of GDP in 2034, up from 99 percent in 2024.
The new projections come as lawmakers are gearing up for a major battle over taxes and spending. Most of the 2017 Trump tax cuts will expire in 2025, leaving lawmakers to decide whether to renew them and, if so, how to pay for them. The United States will once again have to deal with statutory limits on how much it can borrow. Congress agreed last year to suspend the debt ceiling and allow the federal government to borrow until next January.
This battle over taxes and expenditure is taking place at a time when the country's fiscal situation is continuously deteriorating. The load continues on America’s aging and retirement programs are facing long-term shortfalls that could eventually result in reduced retirement and medical benefits.
Both Democrats and Republicans have expressed concern about the national debt as inflation and interest rates have surged in the past few years, but controlling spending has been difficult. The CBO report assumes that the 2017 tax cuts will not be extended, but that is highly unlikely. President Biden has said he would extend some tax cuts, including tax cuts for low- and middle-income earners; and former President Donald J. Trump has said he would extend all of them if he wins in November. Extending the tax cuts in full could cost about $5 trillion over 10 years.
The main reason for the large estimated deficit was The Biden administration's decision to cancel over $100 billion in student loan debtthe cost of new aid packages for Ukraine and Israel, and higher-than-expected spending for Medicaid.
The CBO also said that the agreement reached by lawmakers to withdraw $20 billion from the Internal Revenue Service, which Republicans had insisted on, would reduce revenue from corporate and individual income taxes by about $32 billion by 2034. This assumption stems from the expectation that the IRS money would be used to crack down on tax cheats, resulting in more federal revenue.
Higher interest rates are also making it harder for the US to manage its debt burden. The budget office estimates that annual interest costs will rise from $892 billion this year to $1.7 trillion in 2034. At that point, the US will spend almost as much on interest payments as it does on Medicare.
“The pernicious effects of high interest rates are fueling higher interest costs on top of existing heavy debt loads, and leading to additional borrowing,” said Michael Peterson, chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint. “This is the definition of unsustainability.”
The budget office said one change in the U.S. economy in recent years is actually helping reduce the deficit and debt over time: an increase in immigration. That's because new immigrant workers are expected to pay about $1 trillion more in taxes than the amount they spend in government benefits.
The office said the United States is on pace to add about 8.7 million more immigrants than historical trends from 2021 to 2026. They are expected to pay taxes that add $1.2 trillion to federal revenue over the course of a decade, while costing about $300 billion in federal benefits — mainly in federal health insurance subsidies for adults and children.
Jim Tankersley Contributed reporting.