WASHINGTON >> The United States gross national debt has reached a historic milestone, surpassing $33 trillion for the first time. This figure serves as a stark reminder of the country’s unstable fiscal trajectory, especially as Washington faces the possibility of a government shutdown due to disagreements over federal spending.
The Treasury Department made note of this significant event in its daily report on the nation’s balance sheet. Meanwhile, Congress is struggling to secure funding for the government before the September 30 deadline. Failure to pass appropriations bills or agree on a short-term funding extension will result in the first federal shutdown since 2019.
Over the weekend, House Republicans proposed a short-term plan to cut spending for most federal agencies and reintroduce stringent border initiatives from the Trump era. This plan aimed to extend funding until the end of October, but it is unlikely to break the impasse in Congress. Republicans are divided on their demands, and Democrats are unlikely to support any compromise among the Republicans.
The debate surrounding the national debt has grown increasingly vocal this year, particularly during the extended standoff over raising the nation’s borrowing limit.
A bipartisan agreement was eventually reached to suspend the debt limit for two years and implement $1.5 trillion in federal spending cuts over a decade. These cuts involved freezing certain projected funding increases for the next year and limiting spending growth to 1% in 2025. However, despite these measures, the national debt is projected to exceed $50 trillion by the end of the decade due to accumulating interest and the rising costs of social safety net programs.
Addressing the growth of the national debt remains an immense challenge. Some federal spending programs introduced during the Biden administration are expected to be costlier than initially estimated. For example, the Inflation Reduction Act of 2022, previously projected to cost $400 billion over a decade, may now exceed $1 trillion due to high demand for the law’s generous clean energy tax credits, according to estimates by the University of Pennsylvania’s Penn Wharton Budget Model.
Pandemic-related relief programs are still placing a financial burden on the federal government. The Internal Revenue Service recently revealed that claims for the Employee Retention Credit, originally expected to cost $55 billion, have actually amounted to $230 billion. The IRS has frozen the program due to concerns about fraud and abuse.
Meanwhile, President Joe Biden has faced resistance in his efforts to generate more revenue through tax changes. In late 2022, the IRS postponed the implementation of a new tax policy requiring users of digital wallets and e-commerce platforms to report small transactions, which was projected to raise $8 billion in additional tax revenue over the next decade. Additionally, the IRS delayed a provision that would prevent high earners from contributing excess funds to their 401(k) retirement accounts by two years, describing it as an “administrative transition period.”
Lobbyists are also pushing for loopholes in new taxes that have been enacted. The corporate alternative minimum tax, designed to prevent wealthy companies from benefiting from single-digit tax rates through deductions, has faced pressure from companies seeking exceptions to protect their most valuable deductions. This tax differs from the global minimum tax that most countries, excluding the United States, are working to adopt.
The opposition to revenue-raising efforts and spending cuts has heightened concerns among budget watchdog groups, who fear an impending fiscal crisis.
Michael A. Peterson, the CEO of the Peter G. Peterson Foundation, which advocates for fiscal restraint, warned of the mounting cost of debt and its impact on future generations. He stated that the compounding fiscal cycle, along with projected interest costs of over $10 trillion in the next decade, would continue to harm future generations.
Both Republicans and Democrats in the House and Senate remain divided on how to avoid a government shutdown, and there is growing pressure to focus on a stopgap bill to keep the government operational beyond September 30.
However, despite these efforts, the national debt continues to rise.
A recent report from the Treasury Department revealed that the deficit, representing the difference between government spending and tax revenue, has reached $1.5 trillion for the first 11 months of the fiscal year. This marks a 61% increase from the same period last year.
Speaking in an interview with CNBC, Treasury Secretary Janet Yellen expressed confidence in the nation’s fiscal course, stating that manageable interest costs as a share of the economy were a positive sign. Nevertheless, she emphasized the importance of cautious future spending.
This article was originally published in The New York Times.
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