Congress is currently engaged in a race against time to come to an agreement on federal agencies’ spending plans for the next fiscal year. Failure to reach a consensus could result in yet another government shutdown, marking the fourth occurrence within the past decade.
Despite the intense political battle, lawmakers are primarily disputing over amounts that represent only a small fraction of the government’s overall budget. Consequently, regardless of any compromises reached, the nation’s mounting debt deficit is unlikely to change significantly.
In May, President Joe Biden and House Speaker Kevin McCarthy reached an agreement to maintain 2024 outlays at similar levels to those of 2022. This arrangement was part of a larger deal aimed at suspending the debt ceiling until 2025 and averting a federal default.
While some Republicans have expressed a desire for further spending cuts, these proposed reductions are relatively modest—estimated at approximately $100 billion, according to The Washington Post. To put this into perspective, such cuts would account for less than 2% of the government’s total spending of $6.3 trillion in fiscal year 2022.
It is important to note that the nation’s current debt stands at a staggering $33 trillion, with projections from the CBO indicating an additional $19 trillion to be added over the next ten years. However, if Congress were to pass a $100 billion annual budget cut for the next decade, it could lead to a $1 trillion reduction in the deficit.
Revenue Outlook: Over the next decade, the federal government is anticipated to collect a total of $65 trillion in revenue. A majority of this amount, over half, is expected to come from individual income taxes, while approximately a third will be sourced from payroll taxes.
Spending Exceeding Revenue: The nation remains on a path of spending more than it collects. With rising interest payments, substantial federal stimulus bills, and the increasing costs associated with Social Security and Medicare benefits for retiring baby boomers, these represent significant spending items for the government.
Mounting Debt: The graph illustrating the progression of the national debt showcases its continuous upward trajectory, with projections indicating an ongoing increase in the coming years.
Debt-to-GDP Ratio: The ratio between the national debt and the country’s gross domestic product (GDP) serves as a critical indicator of its overall economic health. Unfortunately, this ratio is predicted to rise steadily, reaching alarming levels by the end of the projection period.
Interest Payments: As the debt grows, so do the interest payments required to service it. This graph visualizes the mounting burden that interest payments will place on future federal budgets.
In conclusion, Congress finds itself in a race against time to finalize federal agencies’ spending plans for the upcoming fiscal year. While the figures being disputed are relatively small in comparison to the overall budget, the nation’s substantial debt deficit remains a pressing concern. By closely examining the CBO’s projections, it becomes evident that prudent measures are needed to address this issue and secure a healthier economic future for the United States.
The Growing Deficit: A Looming Crisis
The Department of Health and Human Services, the Social Security Administration, and the Treasury Department are the top three federal agencies projected to spend the most money in the coming decade. The Congressional Budget Office (CBO) estimates a staggering $1.4 trillion gap, or deficit, for 2023 alone, with the annual deficit expected to rise over the next 10 years, reaching $2.7 trillion by 2033.
If these projections hold true, the deficit for 2033 would amount to 6.9% of the gross domestic product (GDP), a level exceeded only five times since 1946. Furthermore, public debt in that year is expected to reach an all-time high of 118% of GDP, including all federal debt held by various entities outside the U.S. government.
However, some experts, like Jim Reid of Deutsche Bank, believe these numbers may be overly optimistic. Reid points out that previous projections from 2009 expected the debt as a percentage of GDP in 2023 to be 57.5%, rather than the projected 98.0% today.
The rapidly growing public debt, coupled with rising interest rates over the past 18 months, means that the government will have to allocate a significant portion of its total spending to cover the net interest on public debt—estimated to be 14% of total spending in 2033. This last occurred during the mid-to-late 1980s when Washington began focusing on deficit reduction, although the process spanned several years.
It is clear that immediate attention is needed to address this escalating crisis.