Fiscal Deficit Continues to Accelerate in the United States
Federal Reserve Building in NYC, U.S. Photo: X/ @SociatUSA
June 21, 2024 Hour: 9:22 am
As the deficit increases, politicians are unlikely to make a serious effort to get spending under control.
On Thursday, the Congressional Budget Office (CBO) said the national debt will hit US$56 trillion by 2034 amid increasing spending. That means debt held by the public would amount to 122 percent of gross domestic product by 2034.
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As the U.S. deficit increases, politicians in Washington are unlikely to make a serious effort to get spending under control. Some economists believe the U.S. budget deficit is on a path that cannot be sustained in the long run. While this will not come overnight, economists fret over the future consequences of record spending.
“There can be no question that the U.S. budget deficit is on an unsustainable path,” Desmond Lachman, a senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund. The “dangerous trajectory” poses “serious questions for the dollar” and inflation’s long-run outlook, he added.
At some point, foreigners might be unwilling to finance the U.S. government if they perceive no real willingness to bring the country’s public finances under control, Lachman said, noting that “it could lead to a dollar crisis and it could also require the Federal Reserve to print money to finance the government. That would be a sure recipe for a renewed surge in inflation.”
“The deficit projections are evidence of a broken budget system. While it is not an immediate crisis, it will become more constraining in future years,” said Barry Bosworth, economist and senior fellow at the Brookings Institution, adding that the growing public debt will slowly crowd out private investment and increase foreign finance and control of the domestic economy.
“It is, however, a very gradual process. A rising share of public spending will be devoted to debt payments, squeezing other public programs. The situation will worsen as an unhappy public pushes for further tax cuts,” he pointed out.
WASHINGTON NOT SERIOUS ABOUT BUDGET REFORM
Experts have indicated that lawmakers in Washington have shown minimal interest in reducing spending or implementing meaningful budget reform. “There is zero support for cuts in any major areas,” said Dean Baker, a senior economist at the Center for Economic and Policy Research.
While Republicans like to cut taxes but do not want to cut public spending, Democrats like to increase public spending but do not want to raise taxes. The net result is that the country keeps running budget deficits that are putting the public debt on an unsustainable path. And “there is no plan to stabilize the budget situation in the future,” Bosworth stressed.
Brookings Institution Senior Fellow Darrell West pointed out that the deficit was significantly increased by former U.S. President Donald Trump’s 2017 tax cuts, and there are intentions to extend those cuts next year. President Joe Biden has proposed ways to decrease the deficit, but his pandemic spending of the last few years raised it as well.
“Neither candidate is likely to do much in the next few years to reduce the deficit,” West said, speaking of the two men running for president in November.
Clay Ramsay, a researcher at the Center for International and Security Studies at the University of Maryland, stated that the government has three levers to do something about the deficit.
The government has the option to increase tax collection, which the Joe Biden administration has allocated Internal Revenue Service resources for. However, there is opposition from Republicans regarding this approach.
The government could change tax laws so more revenue is collected. This primarily means that the wealthy and upper middle class would pay more. The Democrats have some willingness to tax the first group but not the second. Republicans have no willingness to tax either group.
The third option would be to spend less. “This is the hardest because it involves setting priorities, which is what the two parties most disagree about.”
Source: Xinhua
teleSUR/ JF
