Nonpartisan US budget specialists warned on Wednesday that the debt-limit agreement reached by President Joe Biden and House Speaker Kevin McCarthy won’t prevent a long-term fiscal disaster, fueling the need for significant spending cutbacks from fiscal conservatives.
Kevin McCarthy and Joe BidenPhotographer: Drew Angerer (Source: Bloomberg)
Increase in US Debts
According to a report released by Bloomberg, on Wednesday by the Congressional Budget Office, the US debt will increase from 98% of the US economy this year to a historic 181% in 2053. Only marginally less than the 195% CBO forecast from February, months before the leaders agreed to freeze agency spending for two years.
According to the paper, such a high and rising level of debt “would slow economic growth, increase interest payments to foreign holders of US debt, and pose serious risks to the fiscal and economic outlook.” As federal debt grew, the potential of a fiscal crisis increased because rising US debt might make investors lose faith in the U.S. government’s ability to manage its finances.
After weeks of contentious discussions, the Biden-McCarthy agreement was reached in May, and it did not reduce payments for expensive entitlement programs like Social Security. To cover the mounting costs of those programs, Republicans likewise opposed tax hikes.
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Expenditure Limitations
McCarthy is supporting domestic spending proposals to alleviate US debts to finance the government at levels lower than those in the accord because he fears a revolt from fiscal conservatives who believe the agreement didn’t go far enough. The move might assist McCarthy in calming down his restless right flank, but it runs the risk of escalating tensions with Biden and the Democratic Senate, which might result in a US government shutdown on October 1 because of US debts.
Over the next 30 years, the CBO predicts that yearly US debts will be 7.3% of GDP on average, which is double the average for the previous 50 years as a percentage of the economy. Interest payments on the substantial US debts will ultimately be the main cause of the expanding deficit.
Spending would account for 29% of GDP in 2053 while revenue would represent 19%.
The paper notes that long-term budget predictions are unpredictable and may improve as a result of demographic shifts or may worsen significantly as a result of unexpected recessions and exacerbated consequences of climate change.
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