That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by US$1.5 trillion over a decade by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 per cent growth in 2025. But the debt is on track to top US$50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation’s social safety net programmes keeps growing.
But slowing the growth of the national debt continues to be daunting.
Some federal spending programmes that passed during the Biden administration are expected to be more costly than previously projected. The Inflation Reduction Act of 2022 was previously estimated to cost about US$400 billion over a decade, but according to estimates by the University of Pennsylvania’s Penn Wharton Budget Model it could cost more than US$1 trillion thanks to strong demand for the law’s generous clean energy tax credits.
Pandemic-era relief programmes are still costing the federal government money. The Internal Revenue Service said last week that claims for the Employee Retention Credit, a tax benefit that was originally projected to cost about US$55 billion, have cost the federal government US$230 billion. The IRS is freezing the programme because of fears about fraud and abuse.
At the same time, several of President Joe Biden’s attempts to raise more revenue through tax changes have been met with resistance.
In late 2022, the IRS delayed by one year a new tax policy that would require users of digital wallets and e-commerce platforms to start reporting small transactions to the agency. The policy was projected to raise about US$8 billion in additional tax revenue over a decade.
Last month, the IRS delayed by two years a new provision that will stop high earners from being able to funnel extra money into their 401(k) retirement accounts. The agency described the delay as an “administrative transition period.”
Meanwhile, lobbyists are pressing for loopholes in new taxes that have been enacted. The 15 per cent corporate alternative minimum tax was devised to ensure that rich companies could no longer get away with paying single-digit tax rates because of creative use of deductions. However, many of these companies have been pushing the Treasury Department, which is writing the rules that will govern the tax, to create exceptions to preserve their most prized deductions. That tax is different from the global minimum tax that most countries, except the United States, are working to adopt.
The pushback against efforts to raise revenue and cut spending has heightened the sense of alarm among budget watchdog groups that fear that a fiscal crisis is approaching.
“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” said Michael A. Peterson, the CEO of the Peter G. Peterson Foundation, which promotes fiscal restraint. “With more than US$10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”
Republicans and Democrats in the House and the Senate continue to be divided on a path forward to avoid the near-term problem of a shutdown, and lawmakers have started pressing for leaders to begin focusing on a stopgap bill to keep the government operating past September 30.
Republicans have been pushing for cuts as a condition of funding the government, blaming out-of-control spending for the country’s fiscal woes.
“This town is addicted to spending other people’s money,” Representative Eli Crane, R-Ariz., said on X, formerly known as Twitter. “Enough is enough.”
But the White House blamed Republicans on Monday for the bulging debt burden.
“The increase in debt over the last 20 years was overwhelmingly driven by the trillions spent on Republican tax cuts skewed to the wealthy and big corporations,” said Michael Kikukawa, a White House spokesperson. “Congressional Republicans want to double down on trickle-down by extending President Trump’s tax cuts and repealing President Biden’s corporate tax reforms.”
A Treasury Department report last week showed that the deficit — the gap between what the United States spends and what it collects through taxes and other revenue — was US$1.5 trillion for the first 11 months of the fiscal year, a 61 per cent increase from the same period a year ago.
In an interview with CNBC on Monday, Treasury Secretary Janet Yellen said she was comfortable with the nation’s fiscal course because interest costs as a share of the economy remained manageable. However, she suggested that it was important to be mindful of future spending.
“The president has proposed a series of measures that would reduce our deficits over time while investing in the economy,” Yellen said, “and this is something we need to do going forward.”
This article originally appeared in The New York Times.
Written by: Alan Rappeport
Photographs by: Kent Nishimura
©2023 THE NEW YORK TIMES
