A Growing Concern for Budget Deficits and National Debt
The U.S. Congress is under pressure to find solutions for skyrocketing budget deficits and escalating debt after Moody’s recent warning about potential credit rating downgrades due to political dysfunction. With the national debt having doubled over the last decade to reach $33.7 trillion (124% of GDP), lawmakers have three main options to consider: raising taxes, cutting spending, or implementing a combination of the two.
Given the current circumstances and the fact that interest rates are on the rise, some legislators are advocating for the establishment of a commission to develop practical strategies for tackling the growing debt burden. According to the Treasury Department, interest payments on the national debt alone are projected to reach an astonishing $659 billion in fiscal year 2023. Senator Mike Braun, a member of the Budget Committee, emphasizes the urgent need for such a fiscal commission, stating that deficits and debt could become pivotal issues in the 2024 elections.
The Rising National Debt: Causes and Concerns
Since 2013, the national debt has more than doubled from $16.7 trillion. During this period, tax reductions introduced by Republicans have diminished revenues, while both parties have endorsed increased spending, partly in response to the COVID-19 pandemic. Moody’s warns that persistently high interest rates will further drive up borrowing costs. In fact, Fitch ratings agency downgraded the U.S. government’s credit rating to AA+ from AAA in August, citing the congressional stalemate that brought the nation perilously close to defaulting on its financial obligations.
Proposed Solutions and Expert Recommendations
Addressing the urgent need for a bipartisan approach to solving the fiscal crisis, Michael Peterson, CEO of the non-partisan Peter G. Peterson Foundation, calls for the formation of a commission. This commission can explore potential solutions by drawing on the expertise of various economists and researchers.
For instance, Mark Zandi, chief economist of Moody’s Analytics, suggests levying a new tax on greenhouse gas emissions and altering the government’s cost-of-living adjustment formula for federal benefit programs. Economists Dana Peterson and Lori Esposito Murray propose reducing the debt-to-GDP ratio to 70% by 2043 through a combination of tax increases and spending cuts. Other recommendations include increasing Social Security taxes for high-income earners and gradually raising the retirement age to 69.
Bipartisan Efforts and Challenges Ahead
Senator Joe Manchin, a Democrat, and Senator Mitt Romney, a Republican, have sponsored a bill to create a bipartisan commission that would likely conclude its work by 2025. The support of House Speaker Mike Johnson adds optimism for the future of such a commission. However, critics, including independent Senator Bernie Sanders, are cautious and express concerns about potential negative implications for Social Security. Sanders suggests exploring alternatives such as removing the cap on taxable income to fortify the Social Security trust fund.
It is widely believed that the commission’s effectiveness hinges on its ability to compel Congress to act on its recommendations. This requirement could eventually persuade Republicans to soften their resistance to tax hikes if the commission suggests them as viable options.