Roundup: Budget group warns U.S. debt could reach 125 pct of GDP with irresponsible actions
WASHINGTON, May 31 (Xinhua) -- U.S. debt in 2032 could reach 125 percent of its GDP, and interest payments could grow to as high as 3.6 percent of GDP through "irresponsible actions," the Committee for a Responsible Federal Budget said Tuesday.
The budget watchdog group noted that the Congressional Budget Office's (CBO) recent budget projections find that the country's debt will reach a record 110 percent of GDP (40.2 trillion U.S. dollars) by the end of fiscal year 2032, while the deficit will reach 6.1 percent of GDP (2.3 trillion dollars) and interest costs will total a record 3.3 percent of GDP.
"These current law projections may prove optimistic, however, since they assume policymakers will allow a number of temporary policies to expire, only grow discretionary spending with inflation, and won't pass any new deficit-financed legislation," the group said in an analysis.
According to the CBO's Budget and Economic Outlook: 2022 to 2032 released last week, the current law baseline assumes the Trump-era individual tax cuts in the Tax Cuts and Jobs Act expire at the end of calendar year 2025.
However, the budget watchdog group said if the tax cuts are extended "permanently" and discretionary spending grows with GDP, deficits through fiscal year 2032 would be 3.1 trillion dollars higher, and debt would reach a record 118 percent of GDP by 2032.
On top of this, policymakers could undertake several other costly fiscal actions, which could further push up the already ballooning deficits and debt, the group noted.
Policymakers may continue various "tax extenders" and "health extenders," and Congress could pass a bill to expand veterans' compensation, a competition bill with funding for semiconductor production and a bill providing additional funding for restaurants and other small businesses, among others. The Biden administration may consider extending the student loan repayment pause and broadly canceling some amount of student debt.
"Though it is unclear exactly how much many of these provisions will cost, a reasonable set of assumptions suggests they could add an additional 2.4 trillion dollars to budget deficits through fiscal year 2032 for a total of 5.5 trillion dollars of costs above current law. This would cause debt to reach a record 125 percent of GDP by 2032," the group said.
Even under the current law, interest spending will rise significantly from 1.6 percent of GDP in 2022 to a record 3.3 percent in 2032, as the Federal Reserve tightens monetary policy, according to the CBO's projections.
"With extensions, interest would increase further to 3.5 percent by 2032, and with the additional actions, it would reach 3.6 percent," the budget group said. "If higher borrowing pushed up interest rates and dampened growth as expected, interest costs would rise even further."
The Peter G. Peterson Foundation, a fiscal watchdog group, also highlighted the sharply rising interest costs. "As the Fed continues to raise interest rates to battle high inflation, interest costs rise significantly," the foundation said in a recent statement.
Over the upcoming decade, CBO projects that net interest payments will total 8.1 trillion dollars; relative to the projection issued last year, such payments would be higher by 1.9 trillion dollars between 2022 and 2031.
CBO projects that inflation will peak at 6.1 percent in 2022 before dropping to 2.4 percent in 2024 and remaining around that level through 2032, which is still above the Fed's 2-percent inflation goal.
The foundation noted that the CBO's latest projections show a worse fiscal outlook than projections made in July 2021, adding that the national debt remains "historically high."
Overall, the CBO report indicates that the nation remains on an "unsustainable" fiscal trajectory due to a "structural mismatch between spending and revenues," the foundation said.
"Higher inflation and interest rates will pose challenges for the federal budget if lawmakers do not work to find a better long-run balance between the growth of spending and revenues," it said.
"Given our bleak fiscal situation, we can't afford more irresponsible actions," said the Committee for a Responsible Federal Budget.