The United States is poised to add nearly $19 trillion to its national debt over the next decade as the rising costs of an aging population and higher interest rates continue to weigh on the nation’s fiscal outlook, the nonpartisan Congressional Budget Office said Wednesday.
But the report did offer some subtle relief: Newly enacted legislation to curb federal spending and a faster-than-expected U.S. economy make the fiscal picture slightly less bleak. Annual deficits over the next decade are 7 percent smaller than the $20.3 trillion the budget office projected last year.
This decline reflects several conflicting forces. A deal President Biden and congressional Republicans struck last year to limit discretionary spending for two years reduces deficits over the course of the decade. So is an increase of 5.2 million new workers in the labor force, most of whom are immigrants.
But those deficit reductions are partially offset by rising estimated fiscal costs from Mr. Biden’s clean energy agenda, an aging U.S. population and higher interest rates on the national debt.
The director of the budget office, Phillip L. Swagel, said that even with deficit reduction, the nation remained on track to accumulate more debt as a share of its total economic output in 2034 than at any other time in its history.
“The first message from the forecasts is familiar: that the fiscal trajectory is scary,” Mr. Swagel said at a briefing with reporters on Wednesday. “On the other hand, it’s a little less bad than in our projections last year.”
The projections for the nation’s finances come as Congress faces another deadline next month to agree on federal spending legislation to keep the government running. Lawmakers are also engaged in a heated debate over whether to give more aid to Ukraine and Israel and whether to extend the child tax credit and restore expired tax credits. The budget office projected that the annual deficit would rise to $2.6 trillion in 2034 from $1.6 trillion a year, adding $18.9 trillion to the national debt over the decade. By then, the debt is projected to exceed $54 trillion.
Interest rates rose to two-decade highs last year, making borrowing costs an increasingly important contributor to the national debt.
From 2024 to 2034, the United States will spend more than $12 trillion on interest costs alone. Starting next year, net interest costs will be larger as a share of the U.S. economy than at any time since the federal government began keeping records in 1940, according to the budget office.
Spending on safety net programs like Social Security and Medicare continues to rise even as their trust funds face the prospect of being depleted in the next 10 years.
“Also fueling the deficits are two underlying trends: an aging population and rising federal health care costs per beneficiary,” Mr. Swagel said. “These trends put upward pressure on mandatory spending.”
The national debt is likely to be even higher than the budget office projects, as its projection assumes that the 2017 tax cuts imposed by Republicans will expire in full, even though lawmakers are already considering extending many of the measures, including lower income tax brackets.
For the second time in less than a year, the budget office said it now expects Mr. Biden’s efforts to wean the nation off fossil fuels will be more popular with the public — and more expensive for taxpayers — than was originally estimated.
Mr. Biden’s 2022 Anti-Inflation Act included the largest stimulus in American history to accelerate the growth and development of energy technologies. Among those incentives were tax breaks for companies investing in factories to make wind turbines, solar panels and other clean energy technologies, along with a credit of up to $7,500 for people who buy certain electric vehicles.
The budget office originally projected these vacations, and other climate provisions, would add $391 billion to deficits from 2022 to 2031. It now estimates that the actual cost will be at least double that when measured over the same time period.
The change is partly because the bureau now estimates much greater demand for power production credits than it originally anticipated. It’s also partly the result of another of Mr. Biden’s policies: a proposed Environmental Protection Agency regulation intended to ensure that two-thirds of new passenger cars sold in America will be all-electric by 2032. The agency expects this regulation will burden demand for electric vehicles and reduce the amount of gasoline American drivers use — which in turn will reduce federal gasoline tax revenue.
Republican lawmakers have been quick to express concern about the growing debt load and blame Mr. Biden and Democrats, despite both parties having passed spending and tax packages that have added to the nation’s debt.
“The economic damage and out-of-control spending that took place during the Democratic control of Washington, which increased the cost to the American people and increased our national debt, brought us to today’s dark reality,” said President Mike Johnson.
Democrats focused on the more optimistic characterization of the economy and the fact that the deficit was smaller than previously expected.
“Today’s CBO baseline confirms that Democrats’ investments to jump-start our recovery and promote a stronger economy have worked: CBO now projects faster economic growth, lower deficits and lower unemployment,” said Sen. Sheldon Whitehouse of Rhode Island. , the Democratic chairman of the Senate Appropriations Committee.
The Biden administration, which will present its next budget proposal next month, has defended its efforts as fiscally — and environmentally — responsible.
Treasury Secretary Janet L. Yellen told lawmakers on Tuesday that interest costs remained manageable as a share of the overall U.S. economy and noted that Mr. Biden had proposed $2.5 trillion in deficit reduction, much of which would come from tax increases and a stricter approach to tax collection.
“We need to be on a fiscally sustainable path, and it’s critical to reduce deficits to make sure that happens,” Ms. Yellen said, lamenting that lawmakers have not acted on the administration’s deficit-reduction plans.
America’s gross national debt topped $34 trillion last month, and fiscal watchdogs are pushing lawmakers to form a fiscal commission to develop policies to stabilize the debt.
“Today’s CBO projections are the latest loud and clear warning about America’s unsustainable national debt,” said Michael A. Peterson, chief executive of the Peter G. Peterson Foundation, which promotes deficit reduction. “There has never been a more urgent time for a bipartisan budget committee to propose solutions that will put us on a stronger path.”
