America’s gross national debt has surpassed $33 trillion, marking a significant milestone that highlights the country’s unstable fiscal path. This comes as Washington faces the possibility of a government shutdown amidst disagreements over federal spending.
The Treasury Department recorded this milestone in its daily report on the nation’s balance sheet. Meanwhile, Congress seems to be struggling to fund the government before the September 30 deadline. If Congress doesn’t pass appropriations bills or agree to a short-term extension of current levels of federal funding, the United States will experience its first government shutdown since 2019.
Over the weekend, House Republicans proposed a short-term solution involving spending cuts for most federal agencies and the reinstatement of certain Trump-era border initiatives. This plan aimed to extend funding until the end of October but had little chance of breaking the impasse in Capitol Hill. Republicans still disagree on their demands, and Democrats are unlikely to support any compromise they reach among themselves.
The debate surrounding the debt has become more intense this year, particularly due to a prolonged standoff over raising the nation’s borrowing cap.
A bipartisan agreement was eventually reached to suspend the debt limit for two years and reduce federal spending by $1.5 trillion over a decade. This was achieved by freezing some projected spending increases for next year and limiting spending growth to 1 percent in 2025. However, the debt is expected to exceed $50 trillion by the end of the decade, even with the newly implemented spending cuts, due to increasing interest costs and the growing expense of social safety net programs.
Slowing down the growth of the national debt remains a challenging task. Some federal spending programs implemented during the Biden administration are projected to be more expensive than initially estimated. For example, the Inflation Reduction Act of 2022, which was previously expected to cost around $400 billion over a decade, could now exceed $1 trillion due to high demand for the law’s clean energy tax credits.
Pandemic-related relief programs continue to burden the federal government financially. The Employee Retention Credit, initially projected to cost approximately $55 billion, has already cost $230 billion. The Internal Revenue Service has suspended the program due to concerns about fraud and abuse.
Simultaneously, President Biden’s efforts to increase revenue through tax changes have faced resistance. For instance, a new tax policy requiring users of digital wallets and e-commerce platforms to report small transactions to the agency has been delayed by one year. This policy was expected to generate an additional $8 billion in tax revenue over a decade.
Lobbyists are also pushing for loopholes in newly enacted taxes. Rich companies have been urging the Treasury Department to create exceptions to protect their most valuable deductions in response to the 15 percent corporate alternative minimum tax. Most countries, excluding the United States, are working towards adopting a global minimum tax.
The resistance against revenue-raising and spending cuts has raised concerns among budget watchdog groups about an imminent fiscal crisis. The cost of the debt can accumulate rapidly, as demonstrated by the recent growth in inflation and interest rates.
Republicans and Democrats in Congress remain divided on how to avoid a government shutdown in the near future. Lawmakers are urging leaders to focus on a stopgap bill to keep the government operating beyond September 30. Republicans insist on making cuts a condition for funding the government, attributing the country’s fiscal problems to excessive spending. The White House, on the other hand, blames Republicans for the mounting debt, pointing to the trillions spent on tax cuts during the last two decades.
According to a recent Treasury Department report, the deficit for the first 11 months of the fiscal year was $1.5 trillion, a 61 percent increase compared to the same period last year.
During an interview, Treasury Secretary Janet L. Yellen expressed comfort with the nation’s fiscal direction, citing manageable interest costs as a share of the economy. However, she emphasized the importance of being mindful of future spending and highlighted President Biden’s proposals to reduce deficits while investing in the economy.