US debt will rise rapidly to $54 trillion over the next decade

The United States is on track to add nearly $19 trillion to its national debt over the next decade as the rising costs of an aging population and higher interest payments continue to weigh on the nation's budget prospects, the nonpartisan Congressional Budget Office said Wednesday.

But the report did provide some relief: Recently passed legislation to curb federal spending and a U.S. economy that has grown faster than expected make the budget picture a little less bleak. Annual deficits over the next decade are 7 percent smaller than the $20.3 trillion the budget office projected last year.

That decline reflects several conflicting forces. A deal that President Biden and Republicans in Congress struck last year to limit discretionary spending for two years will reduce deficits over the decade. This includes the increase of 5.2 million new workers in the workforce, most of whom are immigrants.

But those deficit declines are partially offset by an increase in estimated budget costs due to Biden's clean energy agenda, an aging U.S. population and higher interest rates on the national debt.

In a statement released with the report, Budget Office Director Phillip L. Swagel said that even with the decline in deficits, the country remained on track to accumulate more debt as a share of total economic output by 2034 than ever before. other times its history.

The projections for the nation's finances come as Congress faces a new deadline next month to agree on federal spending legislation to keep the government running. Lawmakers are also engaged in a heated debate over providing more aid to Ukraine and Israel and whether to expand the child tax credit and restore expired tax breaks for businesses.

The budget office projected that the annual deficit will increase from $1.6 trillion this year to $2.6 trillion in 2034, increasing the national debt by $18.9 trillion over the decade. By then, the debt is expected to exceed $54 trillion.

Interest rates rose last year to their highest level in two decades, causing borrowing costs to increasingly contribute to the national debt.

From 2024 to 2034, the United States alone will spend more than $12 trillion on interest costs. Starting next year, net interest costs, as a percentage of the U.S. economy, will be greater than at any time since the federal government began keeping records in 1940, according to the budget office.

Spending on safety net programs like Social Security and Medicare continues to grow, even as their trust funds threaten to be depleted over the next decade.

“Also widening the shortages are two underlying trends: the aging of the population and the growth of federal health care costs per beneficiary,” Mr. Swagel said in a statement accompanying the report. “These trends are putting upward pressure on mandatory spending.”

The national debt is likely to be even higher than the budget office predicts because the forecast assumes that the 2017 tax cuts that Republicans passed will expire completely, even as lawmakers are already considering expanding many of the measures, including lower individual income tax brackets.

For the second time in less than a year, the budget office now said it expects Biden's efforts to wean the nation from fossil fuels would be more popular with the public — and more expensive for taxpayers — than initially estimated.

Mr. Biden's Inflation Reduction Act of 2022 included the largest incentives in American history to accelerate the development and deployment of energy technologies. Those incentives included tax breaks for companies that invested in factories to produce wind turbines, solar panels and other clean energy technologies, along with a credit of up to $7,500 for people who buy certain electric vehicles.

The budget office initially projected that these breaks, and other climate provisions, would add $391 billion to the deficit between 2022 and 2031. It now estimates that the actual cost, measured over that same time frame, will be at least twice as high.

This change is partly because the agency now estimates much higher demand for energy production credits than initially expected. It is also partly the result of another of Mr. Biden's policies: a proposed Environmental Protection Agency regulation that would ensure that two-thirds of new passenger cars sold in America will be all-electric by 2032. The agency expects these regulations to provide a boost. demand for electric vehicles and also to reduce the amount of gasoline American motorists consume – which in turn will reduce federal revenue from gasoline taxes.

The Biden administration, which will submit its next budget proposal next month, has defended its efforts as fiscally – and environmentally – responsible.

Treasury Secretary Janet L. Yellen told lawmakers on Tuesday that interest costs remained manageable as a percentage of the overall U.S. economy and noted that Mr. Biden has proposed $2.5 trillion in deficit reduction, much of which would come from tax increases and a more rigorous approach. to tax collection.

“We must be on a fiscally sustainable path and it is critical to reduce deficits to ensure that is the case,” Ms. Yellen said, lamenting that lawmakers have not acted on the deficit reduction plans of the government.

America's gross national debt reached $34 trillion last month and budget watchdog groups have urged lawmakers to form a budget committee that would develop policies to stabilize debt.

“Today's CBO projections are the latest loud and clear warning about the unsustainable U.S. national debt,” Michael A. Peterson, CEO of the Peter G. Peterson Foundation, which promotes deficit reduction, said in a statement. “There has never been a more urgent time for a bipartisan budget committee to recommend solutions that can put us on a stronger path.”