The U.S. national debt has crossed the $33 trillion threshold for the first time, as reported by the Treasury Department on Monday. This milestone comes at a time when Congress is grappling with potential government shutdown due to disagreements over federal spending and difficulties in passing appropriations bills or agreeing on an extension of federal funding at existing levels before the looming September 30 deadline.
The national debt issue has become increasingly contentious this year, leading to significant political tension and a bipartisan agreement to suspend the debt limit for two years. The agreement also includes measures to reduce federal spending by $1.5 trillion over ten years through limiting spending growth and freezing certain projected increases. Despite these efforts, projections suggest that the national debt could exceed $50 trillion by the end of the decade due to rising interest and increasing costs of social safety net programs.
Recent spending programs introduced during President Biden's administration are predicted to be more costly than initially estimated, adding to the fiscal pressure. For instance, the Inflation Reduction Act of 2022 was initially projected to cost around $400 billion over ten years, but recent estimates from the University of Pennsylvania’s Penn Wharton Budget Model suggest that it could exceed $1 trillion due to high demand for its clean energy tax credits.
Furthermore, pandemic relief programs continue to place a heavy burden on federal finances. The Employee Retention Credit, initially projected to cost about $55 billion, has already cost the federal government $230 billion. This has led the Internal Revenue Service (IRS) to halt the program due to concerns about fraud and abuse.
Attempts by President Biden's administration to increase revenue through tax changes have faced opposition and delays. A new tax policy requiring users of digital wallets and e-commerce platforms to report small transactions was delayed by a year. Similarly, a provision preventing high earners from putting extra money into their 401(k) retirement accounts was delayed by two years. Corporate lobbying efforts are also pushing for exemptions in new tax laws, particularly a 15% corporate alternative minimum tax designed to prevent wealthy companies from paying low tax rates through creative use of deductions.
Budget watchdog groups have expressed concerns about an impending fiscal crisis, warning that the cost of debt can increase suddenly and rapidly, potentially causing significant economic damage. Meanwhile, lawmakers are urging leaders to focus on a stopgap bill to keep the government running beyond September 30. However, the federal deficit continues to increase, with a recent Treasury Department report showing a 61% increase from the previous year, reaching $1.5 trillion in the first 11 months of the fiscal year.
Treasury Secretary Janet L. Yellen has expressed comfort with the nation’s fiscal course due to manageable interest costs relative to the economy. However, she emphasized the need for careful consideration of future spending in a recent interview.
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