The Congressional Budget Office has projected that the United States will accumulate over $19 trillion in gross national debt over the next 10 years, which is $3 trillion more than previously forecasted. Despite the country’s expected revenue of $65 trillion over the next decade, the government will still spend more than it collects due to rising interest payments, federal stimulus bills, and the increasing costs of Social Security and Medicare benefits. The Department of Health and Human Services, Social Security Administration, and Treasury Department are projected to be the biggest spenders.
The public debt in 2033 is expected to reach 118% of GDP, the highest level ever recorded, with a projected annual deficit of $2.7 trillion in the same year. The federal government is also expected to spend 14% of its total spending on net interest on public debt, similar to the 1980s when Washington started to focus on deficit reduction. Congress remains gridlocked over raising the federal borrowing limit, and the government’s $31.4 trillion debt limit was reached in January, with funding expected to be exhausted as early as July if the borrowing cap is not raised.
Current U.S. debt levels and projections
According to a recent report by the New York Federal Reserve, the current and projected levels of US consumer and government debt are cause for concern. Consumer debt has hit a record high of $16.9 trillion by the end of 2022, and the federal government’s borrowing is also increasing, with total US government debt approaching $31.5 trillion. The Congressional Budget Office estimates that the US will accumulate over $19 trillion in gross national debt over the next decade due to factors such as rising interest rates, demographic changes, and federal spending.
The report projects that the US national debt will increase significantly from $28.4 trillion in 2021 to $45.3 trillion by 2032, an increase of 60% over 11 years. This could have significant implications for the US economy and government policy, and policymakers must manage the debt carefully to avoid potential economic and fiscal challenges.
Data Credits: statista.com
The rising debt levels are also expected to result in net outlays for interest increasing substantially, with the projected exhaustion date for the debt limit between July and September 2023. This could result in the government being unable to pay its obligations fully, resulting in the government delaying making payments for some activities, defaulting on its debt obligations, or both. The report highlights the need for changes in fiscal policy to address the rising costs of interest and mitigate other adverse consequences of high and rising debt.
In terms of the outlook on the economy, the Federal Reserve is expected to further raise the target range for the federal funds rate in early 2023 to reduce inflationary pressures. It is clear that the rising debt levels and their impact on the economy require immediate attention and action from policymakers to address the challenges ahead.
Rising government spending & its Impact on U.S. debt
As the U.S. government spending continues to rise, the country’s debt is expected to keep growing. The government spends on various goods, programs, and services, with mandatory and discretionary categories. The Monthly Treasury Statement (MTS) dataset shows a significant increase in government spending for the fiscal year 2023, with $1.93 trillion spent as of October 2022, resulting in a deficit due to spending exceeding revenue.
The federal government spends on interest incurred on federal debt, which grows with the debt. Social Security, Health, Income Security, National Defense, and Medicare are among the top categories and agencies for federal spending. The Congressional Budget Office has projected that the increasing costs of Social Security and Medicare benefits, federal stimulus bills, and rising interest payments will contribute to the country’s debt reaching over $19 trillion over the next decade.
Data Credits: usgovernmentspending.com
This data highlights the fluctuations in U.S. government spending between the years 2012 to 2023. The data shows a significant increase in spending in 2020, with projected decreases in spending for 2023. There were consistent federal spending growth rates between 2015 and 2019, with some years showing slightly negatives.
The federal budget is divided into approximately 20 categories known as budget functions, and the purpose of the federal government is to provide for the common defense, promote general welfare, and secure liberty for ourselves and our posterity. However, the rising debt levels and their impact on the economy require immediate attention and action from policymakers to address the challenges ahead.
Increasing costs of social security, medicare benefits
The rising costs of Social Security and Medicare benefits are contributing to the growing U.S. debt. With over 70 million Americans set to receive an 8.7% increase in Social Security and Supplemental Security Income (SSI) benefits starting in January 2023, this marks the largest increase in over 40 years. While automatic annual cost-of-living allowances have been in place since 1975 to prevent inflation from diminishing the value of Social Security benefits, the increase in benefits will put additional pressure on the government’s budget.
Data Credits: ssa.gov
The data illustrates a consistent rise in Social Security and Medicare costs from 2011 to 2023. Social Security costs increased from $736 billion in 2011 to a projected $1,262 billion in 2023, while Medicare costs increased from $549 billion in 2011 to a projected $1,048 billion in 2023. Both Social Security and Medicare costs showed annual increases, ranging from 0.2% to 6.4% for Social Security and 1.7% to 11.2% for Medicare, with the largest increases in 2012 and 2021.
Additionally, Medicare changes, including higher benefit amounts, will be made available in 2023. Social Security beneficiaries who receive Medicare will receive their new benefit amount in December through the mailed COLA notice or my Social Security’s Message Center. These rising costs in Medicare, along with the increasing costs of Social Security benefits, pose a significant challenge for the government in managing its debt. As such, it is crucial to monitor these costs and adjust for inflation when necessary to ensure the financial sustainability of these programs.
As seen in the data above, it is noteworthy that Social Security and Medicare costs have been rising over the years and these cost increases are a significant concern, particularly for the United States’ government budget. It, therefore, is important to monitor these costs and adjust for inflation when necessary.
The biggest spending departments
The United States government’s expenditures in fiscal year 2023 reveal that the largest spending departments are Pensions, Health Care, Education, and Defense, with Pensions leading the pack at $1.8 trillion. Health Care and Education follow with $2.2 trillion and $1.4 trillion, respectively. Defense comes fourth with a total spending of $1.2 trillion. Additionally, Welfare, Protection, Transportation, General Government, and Other Spending departments have also incurred significant expenses.
Data Credits: usgovernmentspending.com
However, the chart above depicts a federal deficit of $1.15 trillion and gross public debt of $36.2 trillion. The US government is borrowing more than it is earning, which could lead to negative outcomes such as inflation and high-interest rates. This data underscores the need for the US government to take action to reduce the deficit and address the underlying causes of high government spending.
To mitigate the escalating debt, policymakers must prioritize making informed decisions about where to allocate government resources while keeping in mind the long-term economic and social impact. It is also essential to implement reforms to reduce spending while maintaining vital programs and services. Addressing the root causes of excessive spending and debt could potentially help stabilize the country’s economic future, while promoting sustained growth and prosperity.
National debt vs. gross domestic product (GDP)
The U.S. national debt has been a growing concern for many years, and the country’s debt-to-GDP ratio is projected to remain high at 126% in 2023. This ratio is a crucial economic indicator as it reflects the country’s ability to repay its debts relative to its economic output. The national debt is the total amount of money owed by the federal government to its creditors, including foreign governments, individuals, and other institutions. On the other hand, GDP is the total value of all goods and services produced in the country over a given period. A higher debt-to-GDP ratio typically means a more significant burden on future generations and may reduce confidence in the country’s ability to repay its debts.
As of September 2021, the U.S. national debt stood at approximately $28.7 trillion, while the GDP was estimated at around $22.7 trillion, resulting in a debt-to-GDP ratio of approximately 126%. Although the U.S. has had higher debt-to-GDP ratios in the past, such as during World War II when it reached 106%, the current ratio is still a cause for concern.
National debt vs. gross domestic product (GDP)
Data Credits: ceicdata.com
The U.S. government has implemented measures to lower the debt-to-GDP ratio, including tax increases, spending cuts, and entitlement program reforms. Despite these efforts, the COVID-19 pandemic has led to significant increases in government spending and an associated increase in national debt. However, the U.S. government can still borrow at low-interest rates, indicating creditor confidence in the country’s ability to repay its debts. Additionally, the U.S. dollar’s status as the world’s primary reserve currency provides a stable financial system supporting the country’s debt.
The above chart clearly indicates a steady increase in the national debt, which is projected to reach $33.99 trillion in 2023, while the GDP is also increasing, but at a slower rate. As a result, the debt-to-GDP ratio is projected to remain at 126%, which is a cause for concern as it indicates that the debt is larger than the country’s economic output.
The implications of high US national debt
The increasing US debt has far-reaching consequences not only for the US economy but also for the global economy. This is because the US dollar is the world’s dominant reserve currency, and any significant changes in its value or stability can impact international financial markets. If the US debt continues to rise, it may lead to a decrease in confidence in the dollar and the US economy, resulting in higher interest rates and inflation. Such events could trigger a domino effect on global markets, thereby affecting trade, investment, and the global financial system’s stability.
Moreover, the rising US debt could lead to a decrease in the country’s ability to invest in infrastructure, education, and other critical areas. This could limit the US’s potential for long-term growth and development, further impacting its economic competitiveness and global influence. As a result, policymakers must take immediate action to manage the country’s fiscal situation and ensure sustainable economic growth and stability. This could involve implementing a range of measures, including reducing government spending, increasing revenue through tax reforms, and developing long-term debt reduction strategies.
