US deficit rises amid political budget showdown | World News

Even if new spending limits in the debt-ceiling agreement reduce borrowing by $1.5 trillion, the U.S. government’s deficit will continue to climb to record levels for decades to come.

These forecasts point to a two-year truce between President Joe Biden and the House speaker Senator Kevin McCarthy (R-Calif.) may only pause briefly before a series of more painful showdowns over the federal budget. The Congressional Budget Office said Tuesday that the deal would reduce spending by $1.3 trillion and interest payments by $188 billion over 10 years. But that amount is too small to fully offset the growing costs of Social Security, Medicare and Medicaid.

Both Biden and McCarthy ruled out cutting Social Security and Medicare, two programs that favor older voters, even before their teams start Budget talks.This omission reflects the politics As Democrats and Republicans gear up for next year’s presidential election, two popular shows surround.

It also means the deal struck on Sunday puts on the table the risk of escalating debt, which could spark another bitter battle when the debt ceiling needs to be raised again in 2025.

“You should look at this as a step,” said Mark Godwin, senior vice president of the Committee for a Responsible Federal Budget. “The question is, can they take the next step after that?”

Lawmakers know there are tough choices ahead, and the only way to get through them may involve some combination of deep spending cuts, broad tax hikes and major overhauls of retirement income and health care programs that eat up growing pockets of federal spending. share.

Mandatory spending — including Social Security, Medicare and Medicaid — already accounts for the bulk of government spending. The size of this category is equivalent to 14% of U.S. gross domestic product, and the CBO expects it to grow to 15.6% by 2023. That compares with 6.5 percent of gross domestic product last year and is expected to drop to 6 percent in 10 years.

Goldwein said he is optimistic that leaders of both parties will find a way to reduce spending growth healthy care plan. Social Security would also face liquidation because its trust funds would not be able to pay all benefits for a decade.

But some budget experts see the deal as focusing more on optics than sustainability.

“This debt limit deal is faltering into a political face deal without much substance in terms of changing the trajectory of America’s debt,” said Romina Boccia, director of budget and rights policy at the libertarian Cato Institute.

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The deal still needs to be ratified Congress, would keep discretionary spending roughly flat for the coming year while allowing for increases in military and veteran accounts. Spending growth will be capped at 1% in 2025, essentially a cut given the likely rate of inflation.

Some Democratic allies see the agreement as problematic because it gives Republicans hope to use the debt ceiling fight as an opportunity to achieve their policy goals despite the risk of default.

“Going forward, we must find a way to abolish the debt ceiling and end the ridiculous debt ceiling hijacking that Republicans are engaging in when they can use it as a stick against a Democratic president,” said Sharon Parrott, the center’s chairwoman. Budget and Policy Priorities, a libertarian think tank.

Other economic analysts have disputed Republican claims that the U.S. is already weighed down by debt, even as investors continue to buy U.S. Treasuries for now. While total federal debt (including what the government owes) exceeds $31 trillion, the U.S. economy has non-financial assets worth more than $143 trillion, suggesting that the current debt burden is manageable.

“It’s not true at all U.S. Bankrupt, on the brink of a debt and deficit crisis,” said Joe Brusuelas, chief economist at consultancy RSM US

But even if there is no immediate liquidation of the debt, there will be a long-term issue that will be deliberately ignored in the negotiations. The president challenged Republicans during his State of the Union address in February to protect Social Security and Medicare from cuts. Republican lawmakers mocked him for suggesting they dared to cut programs, leading Biden to declare, “We’ve got a deal.”

Biden on Sunday specifically praised the bipartisan agreement to protect Social Security and Medicare, while saying the deal that must pass the House and Senate would prevent a potentially catastrophic default on June 5.

“This is good news,” the president said, “for the American people.”

House lawmakers, however, received a concrete briefing in March that suggested the entitlement program would drive up debt. Publicly held debt will more than double to 195% of gross domestic product by 2053, according to a speech by CBO Director Phillip Swagel. The key challenge is that an aging population means that the costs of seniors programs outweigh tax revenues.

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Swagel offers 17 policy options for reducing debt, six of which are tax increases that could raise trillions of dollars over 10 years. Tax increases are out of the question for Republicans, while Democrats generally shy away from entitlement cuts.

His slides included this warning: “The longer action is delayed, the greater the need for policy change.”