America’s gross national debt topped $33 trillion for the first time on Monday, a stark reminder of the country’s shaky fiscal trajectory at a time when Washington faces the prospect of a government shutdown this month amid a renewed fight over federal spending is.
The Finance Ministry noted the milestone in its daily report on the country’s balance sheet. This came as Congress appears to be stalling in its efforts to fund the government before the September 30 deadline. Unless Congress can pass a dozen budget bills or agree to a short-term extension of federal funding at existing levels, the United States faces its first government shutdown since 2019.
Over the weekend, House Republicans discussed a short-term proposal that would cut spending for most federal agencies and revive tough Trump-era border initiatives, extending funding through the end of October. But the plan had little hope of breaking the impasse on Capitol Hill, with Republicans still divided on their demands and Democrats unlikely to support the compromise they reach among themselves.
Debate over debt has grown louder this year, punctuated by a prolonged standoff over raising the country’s borrowing limit.
That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade by effectively freezing some funding that was expected to increase next year and then spending were limited to growth of 1 percent in 2025. But the debt is expected to top $50 trillion by the end of the decade, even accounting for newly enacted spending cuts, as interest on the debt rises and the cost of the country’s social security programs continues to rise.
But the slowdown in public debt growth remains frightening.
Some federal spending programs enacted during the Biden administration are expected to be more expensive than previously forecast. Previously, the Inflation Reduction Act of 2022 was estimated to cost about $400 billion over a decade. But it could cost more than $1 trillion, thanks to strong demand for the law’s generous clean energy tax credits, according to estimates from the University of Pennsylvania’s Penn Wharton Budget Model.
Pandemic-era aid programs are still costing the federal government money. The Internal Revenue Service said last week that claims for the Employee Retention Credit, a tax break originally expected to cost about $55 billion, have so far cost the federal government $230 billion. The IRS freezes the program due to fears of fraud and abuse.
At the same time, several of President Biden’s attempts to raise more revenue through tax changes have met with resistance.
In late 2022, the IRS delayed by a year a new tax policy that would require users of digital wallets and e-commerce platforms to report small transactions to the agency. The policy was expected to generate about $8 billion in additional tax revenue over a decade.
Last month, the IRS delayed for two years a new rule that bars high earners from transferring extra money to their 401(k) retirement accounts. The agency described the delay as an “administrative transition period.”
Meanwhile, lobbyists are pushing for loopholes in the newly enacted taxes. The 15 percent alternative corporate minimum tax was designed to ensure that rich companies can no longer get away with single-digit tax rates due to creative deductions. But many of these companies have pushed the Treasury Department, which currently sets the rules for the tax, to create exceptions to preserve their most valuable deductions. This tax is different from the global minimum tax, which most countries except the United States are working to implement.
Resistance to efforts to raise revenue and cut spending has increased concerns among budget watchdog groups who fear a financial crisis is approaching.
“As we have seen with the recent rise in inflation and interest rates, the cost of debt can rise suddenly and quickly,” said Michael A. Peterson, executive director of the Peter G. Peterson Foundation, which advocates for fiscal restraint. “With more than $10 trillion in interest costs over the next decade, this worsening fiscal cycle will only continue to harm our children and grandchildren.”
Republicans and Democrats in the House and Senate continue to disagree over how to avoid the near-term problem of a shutdown, and lawmakers have begun urging leaders to focus on a stopgap bill to keep the government running to keep it going beyond September. 30.
But the red ink keeps rising.
A Treasury Department report last week showed that the deficit – the gap between what the United States spends and what it collects from taxes and other revenues – was $1.5 trillion in the first 11 months of the fiscal year, which is a Increase of 61 percent over the same period corresponds to a year ago.
In an interview with CNBC on Monday, Treasury Secretary Janet L. Yellen said she was pleased with the country’s fiscal stance as interest costs remained manageable as a share of the economy. However, she noted that it is important to keep an eye on future spending.
“The president has proposed a number of measures that would reduce our deficits over time while investing in the economy,” Ms. Yellen said, “and that is something we need to do going forward.”