U.S. starts fiscal year with record $31 trillion in debt, approaching debt ceiling
The nation's gross national debt has exceeded $31 trillion, according to a U.S. Treasury report released Tuesday that logs America's daily finances.
Nearing the statutory ceiling of roughly $31.4 trillion — an artificial cap Congress placed on the U.S. government's ability to borrow — the debt numbers are hitting an already tenuous economy facing the highest inflation in 40 years, rising interest rates and a strong U.S. dollar.
Even as President Joe Biden has touted his administration's deficit reduction efforts this year and recently signed the so-called Inflation Reduction Act, which attempts to tame high price increases caused by a variety of economic factors, economists say the latest debt numbers are a reason for concern.
Owen Zidar, a Princeton economist, said rising interest rates will exacerbate the nation's growing debt issues and make the debt itself more costly. The Federal Reserve has raised rates several times this year in an effort to combat inflation.
Zidar said the debt "should encourage us to consider some tax policies that almost passed through the legislative process but didn't get enough support," like imposing higher taxes on the wealthy and closing the carried interest loophole, which allows money managers to treat their income as capital gains.
"I think the point here is if you weren't worried before about the debt before, you should be — and if you were worried before, you should be even more worried," Zidar said.
The Congressional Budget Office earlier this year released a report on America's debt load, warning in its 30-year outlook that, if unaddressed, the debt will soon spiral upward to new highs that could ultimately imperil the U.S. economy. If unchecked, investors could lose confidence in the U.S. government's ability repay its debt, which would result in a spike in interest rates and rising inflation, the CBO warned.
And as interest rates rise — as they are now under the Federal Reserve's regime of rate hikes — the U.S. will be forced to spend "substantially" more on interest payments, the CBO added. That could weaken the fiscal position of the U.S., it noted.
"Addicted to debt"
In its August Mid-Session Review, the administration forecasted that this year's budget deficit will be nearly $400 billion lower than it estimated back in March, due in part to stronger than expected revenues, reduced spending and an economy that has recovered all the jobs lost during the multiyear pandemic.
In full, this year's deficit will decline by $1.7 trillion, representing the single largest decline in the federal deficit in American history, the Office of Management and Budget said in August.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget said in an emailed statement Tuesday, "This is a new record no one should be proud of."
"In the past 18 months, we've witnessed inflation rise to a 40-year high, interest rates climbing in part to combat this inflation, and several budget-busting pieces of legislation and executive actions," MacGuineas said. "We are addicted to debt."
A representative from the Treasury Department was not immediately available for comment.
Sung Won Sohn, an economics professor at Loyola Marymount University, said "it took this nation 200 years to pile up its first trillion dollars in national debt, and since the pandemic we have been adding at the rate of 1 trillion nearly every quarter."
Predicting high inflation for the "foreseeable future," he said, "when you increase government spending and money supply, you will pay the price later."