The United States is on track to add trillions of dollars to the national debt over the next decade, borrowing at a faster pace than previously expected as major legislative battles over taxes and spending loom.
The Congressional Budget Office said Tuesday that the U.S. national debt is on track to exceed $56 trillion by 2034 as rising spending and interest payments outpace tax revenues. Rising Social Security and Medicare costs continue to strain the nation's finances, and rising interest rates are also weighing on the nation, 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. A budget deficit is the difference between what the United States spends and what it receives from taxes and other revenues. The deficit is projected to be $1.9 trillion in 2024, up from a $1.6 trillion forecast earlier this year. Over the next decade, the annual deficit is projected to balloon to $2.9 trillion by 2034. The national debt as a share of the economy will be 122 percent of gross domestic product in 2034, up from 99 percent in 2024.
The new projections come as lawmakers prepare for a major tax-and-spend battle. Most of Trump's 2017 tax cuts expire in 2025, and lawmakers must decide whether to extend them and, if so, how to pay for them. The U.S. also must once again address statutory limits on how much it can borrow; Congress agreed last year to suspend the debt ceiling, allowing the federal government to continue borrowing through January.
The fight over taxes and spending comes as the country faces an increasingly tight fiscal situation: An aging population continues to weigh on America's retirement systems, and those systems face long-term shortfalls that could ultimately lead to cuts to retirement and health care benefits.
Both Democrats and Republicans have expressed concern about the national debt after the past few years of surging inflation and interest rates, but restraining spending has been difficult. The CBO report assumes that the 2017 tax cuts will not be extended, which is highly unlikely. President Biden has said he would extend some of the tax cuts, including those for low- and middle-income earners, and former President Donald J. Trump has said he would extend all of the tax cuts if he wins the November election. Extending the tax cuts in their entirety could cost about $5 trillion over 10 years.
The larger projected deficit is driven primarily by the Biden administration's cancellation of more than $100 billion in student loan debt, the cost of new aid packages for Ukraine and Israel and higher-than-expected spending on Medicaid.
The CBO also said that a Republican-backed deal among lawmakers to claw back $20 billion from the IRS would reduce corporate and individual income tax revenues by about $32 billion through 2034. The assumption stems from the expectation that IRS funds would be used to crack down on tax evaders, increasing federal revenues.
High interest rates are also making it harder for the U.S. to manage its debt burden. The Budget Office projects that annual interest costs will rise from $892 billion this year to $1.7 trillion in 2034. At that point, the U.S. will be spending roughly the same amount on interest payments as it does on Medicare.
“The adverse effects of rising interest rates on existing large amounts of debt continue, leading to additional borrowing,” said Michael Peterson, CEO of the pro-austerity Peter G. Peterson Foundation. “This is the definition of unsustainable.”
The Budget Office said one change in the US economy in recent years could actually help reduce the deficit and debt in the long run: the immigration surge, because the new immigrant workers are expected to pay nearly $1 trillion more in taxes than they spend in government benefits.
The agency said the US will add about 8.7 million more immigrants between 2021 and 2026 than would be expected based on historical trends. Immigrants are expected to pay taxes that will raise federal revenue by $1.2 trillion over 10 years, while consuming about $300 billion in federal benefits, primarily federal health insurance subsidies for adults and children.
Jim Tankersley Contributed report.
