The shocking milestone came just days before a possible government shutdown later this month: To prevent it, Democrats and Republicans would have to reach an agreement for Congress to approve funding for the federal government.
Debt is expected to exceed $50 trillion by the end of the decade
The federal government’s new negative balance sheet comes after a political battle that ended in June with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade. But that pact left some Republicans dissatisfied as it was seen as a victory for President Joe Biden.
Although this agreement freezes funds and limits spending growth to 1% through 2025, experts predict that debt will rise to over $50 trillion by the end of the current decade.
The debt increase has been fueled by pandemic-era relief programs such as the Employee Retention Credit, which was originally supposed to cost much less but is already approaching $230 billion.
It was also boosted by President Joe Biden’s legislative initiatives, but most experts agree that the biggest increase in debt came from tax cuts enacted by former President Donald Trump for the richest Americans.
According to the Center for American Progress, these tax cuts have added $10 trillion to the debt since their inception and are responsible for 57% of the increase in the debt-to-GDP ratio since 2001, and more than 90% of that increase when excluding costs incurred Pay attention. due to the Great Recession and the pandemic.
Despite the problem of rising debt, several of President Biden’s attempts to raise more revenue through tax changes have met with resistance from the opposition.
As the Treasury Department said in a report last week, the country’s deficit, which is the difference between the country’s spending and what it collects from taxes and other revenues, was $1.5 trillion in the first 11 months of the fiscal year.
This represents an increase of 61% compared to the same period last year and suggests that the solution to the problem of government financing must partly include a fiscal component.
In an interview with CNBC on Monday, when asked about the new peak in national debt, Treasury Secretary Janet Yellen said she was pleased with the country’s fiscal policy direction.
Yellen said interest costs remained manageable relative to the economy, but she noted that it was important to consider 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 that’s something we need to do in the future.”
The federal government could close its doors in a few days
Meanwhile, a proposal from House Speaker Kevin McCarthy that would have funded government operations through the end of October failed over the weekend.
The initiative was rejected by the most extreme faction of the Republican caucus, even though most federal agencies had made spending cuts and some Trump-era border initiatives were implemented.
If Congress fails to find a compromise that finances the work of the federal government, it could no longer function for the first time since 2019.
What is the debt ceiling and why would it be catastrophic if the US couldn’t make its payments?