The debt-limit accord between President Joe Biden and House Speaker Kevin McCarthy won’t stave off a long-term fiscal crisis, non-partisan US budget analysts warned Wednesday, adding fuel to fiscal conservatives’ push for deep spending cuts.
(Bloomberg) — The debt-limit accord between President Joe Biden and House Speaker Kevin McCarthy won’t stave off a long-term fiscal crisis, non-partisan US budget analysts warned Wednesday, adding fuel to fiscal conservatives’ push for deep spending cuts.
The US debt will grow from 98% of the US economy this year to a historic 181% in 2053, the Congressional Budget Office said in a Wednesday report. That’s down only slightly from the 195% CBO projected in February, months before the leaders’ deal capping agency spending for two years.
“Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook,” the report states. “The likelihood of a fiscal crisis would increase as federal debt continued to rise, because mounting debt could erode investors’ confidence in the U.S. government’s fiscal position.”
The Biden-McCarthy deal, brokered in May after weeks of intense negotiations, didn’t cut benefits to costly entitlement programs like Social Security. Republicans also resisted tax increases to pay for the rising costs of those programs.
McCarthy, who faces the threat of a rebellion from fiscal conservatives who say the agreement didn’t go far enough, is backing domestic spending bills that fund the government at levels below those in the deal.
The maneuver could help McCarthy calm his restive right flank but it risks a standoff with Biden and the Democratic Senate that could lead to a US government shutdown on Oct. 1.
CBO projects that annual deficits will average 7.3% of gross domestic product per year over the next 30 years, double the average over the past 50 years as a percentage of the economy. The ultimate driver of the growing deficit will be interest costs servicing the large debt.
By 2053, spending would be 29% of GDP with revenue at 19% of GDP.
The report acknowledges that long-term budget projections are uncertain and could improve with demographic changes, or it could be much worse due to unforeseen recessions and worsening climate change effects.
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