America’s gross national debt exceeded $33 trillion for the first time on Monday, highlighting the country’s concerning fiscal trajectory as Washington faces the possibility of a government shutdown this month due to disagreements over federal spending.
The Treasury Department announced this milestone in its daily report on the nation’s balance sheet. This comes at a time when Congress is struggling to fund the government before the September 30 deadline. If Congress fails to pass appropriations bills or agree on a short-term extension of federal funding, the United States could face its first government shutdown since 2019.
Over the weekend, House Republicans considered a short-term proposal to reduce spending for most federal agencies and revive strict border initiatives from the Trump era in order to extend funding through October. However, this plan is unlikely to break the impasse in Capitol Hill, as Republicans are divided on their demands and Democrats are unlikely to support any compromise reached among Republicans.
The debate over the national debt has intensified this year, especially during the extended standoff over raising the nation’s borrowing limit.
Despite a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade, the national debt is projected to surpass $50 trillion by the end of the decade. This is due to mounting interest on the debt and the increased cost of social safety net programs.
Efforts to slow down the growth of the national debt are still challenging. Some federal spending programs introduced during the Biden administration are expected to be more expensive than initially estimated. For example, the Inflation Reduction Act of 2022 was estimated to cost around $400 billion over a decade, but now it could exceed $1 trillion due to high demand for generous clean energy tax credits, according to the University of Pennsylvania’s Penn Wharton Budget Model.
Pandemic-era relief programs are also contributing to the rising debt. The Internal Revenue Service (IRS) recently revealed that the Employee Retention Credit, originally projected to cost about $55 billion, has already cost the federal government $230 billion due to an unexpectedly high number of claims. The IRS has halted the program temporarily due to concerns about fraud and abuse.
Additionally, President Biden’s attempts to generate more revenue through tax changes have faced resistance. The IRS delayed the implementation of a new tax policy that would require reporting small transactions to the agency, which was projected to generate an additional $8 billion in tax revenue over a decade. There has also been a delay in a provision that would prevent high earners from contributing extra money to their 401(k) retirement accounts.
The pushback against revenue-raising efforts and spending cuts has alarmed budget watchdog groups, who fear that a fiscal crisis is looming.
Both Republicans and Democrats in Congress are divided on how to avoid a government shutdown in the near future. Some Republicans are demanding spending cuts as a condition for funding the government, blaming excessive spending for the country’s fiscal problems.
However, the White House placed the blame on Republicans for the growing debt burden, citing the trillions spent on tax cuts for the wealthy and corporations during the past two decades. The Treasury Department’s recent report showed that the deficit for the first 11 months of the fiscal year increased by 61 percent compared to the same period last year.
In an interview, Treasury Secretary Janet L. Yellen expressed confidence in the nation’s fiscal course, citing manageable interest costs as a share of the economy. However, she emphasized the importance of being mindful of future spending and endorsed President Biden’s proposals to reduce deficits while investing in the economy.