U.S. on track to add $19 trillion in new debt over 10 years as baby boomers retire

WASHINGTON — The United States is on track to add nearly $19 trillion to its national debt over the next decade, $3 trillion more than previously forecast, the result of rising costs for interest payments, veterans' health care, retiree benefits and the military, the Congressional Budget Office said Wednesday.

The new forecasts project a $1.4 trillion gap this year between what the government spends and what it takes in from tax revenues. Over the following 10 years, deficits will average $2 trillion annually as tax receipts fail to keep pace with the rising costs of Social Security and Medicare benefits for retiring baby boomers.

To put those numbers in context, the total amount of debt held by the public will equal the total annual output of the U.S. economy in 2024, rising to 118% of the economy by 2033.

Congress' nonpartisan budget scorekeeper now projects that the U.S. economy will barely grow this year, after adjusting for inflation, and that the unemployment rate will rise above 5%, before growth re-accelerates next year. It attributes the slowdown in growth to the Federal Reserve's campaign to tame inflation by raising interest rates, which is aimed at cooling the economy and the labor market.

The updated projections could supercharge a partisan debate between President Joe Biden and Republicans over taxes, spending and the nation's debt limit. Republican lawmakers are refusing to raise the limit — which caps the total amount of money that the federal government is authorized to borrow to fulfill its financial obligations — unless Biden agrees to steep but unspecified spending cuts. Biden has repeatedly said that he will not negotiate over raising the borrowing cap, which allows the government to pay for expenses that Congress has already authorized.

Republican resistance to raising the limit threatens to set off a financial crisis and recession if the government is unable to pay all of its bills on time.

The budget office said in a separate report on Wednesday that such a crisis could occur as soon as July — and possibly even earlier — if lawmakers do not agree to raise the $31.4 trillion limit, which the government technically hit last month.

There were no indications in the report that the size of the federal debt was dragging on economic growth or would any time soon. But officials warned that, in the longer run, policymakers would need to change the nation's fiscal course, which could come from raising taxes, cutting spending or both.

"Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt," the director of the budget office, Phillip L. Swagel, wrote in a letter accompanying the report.

While Republican lawmakers have blamed Biden and Democrats for the rising deficits, the report makes clear that bipartisan legislation — and the Fed's interest rate increases — are to blame for the jump in debt projections.

Newly enacted legislation in the past nine months will add about $1.5 trillion to cumulative deficits over the next decade, the budget office said. More than half that increase comes from a single law: an expansion of health care benefits for military veterans who were exposed to toxic burn pits. That bill passed overwhelmingly in the House and Senate, with majorities of Republicans in both chambers voting yes.

The legislation makes it easier for veterans who believe they were exposed to toxins during their service to receive medical benefits, by effectively presuming that any American service member stationed in a combat zone for the last 32 years could have been exposed. It also provides a dedicated stream of funding to treat ailments tied to those exposures.

In contrast, the budget office said Biden's signature climate, tax and health care bill, which passed with only Democratic votes, would modestly reduce deficits over the next decade. That's because the bill's spending and tax credits were more than offset by its tax increases on corporations and high earners, along with its efforts to reduce the government's spending on prescription drugs for retirees.

Despite those findings, Republican leaders in the House called the report evidence of overspending by Biden and his party. The report "shows the damage of Democrat spending on the national debt is worse than we thought," said Rep. Jodey Arrington of Texas, who chairs the budget committee.

Speaker Kevin McCarthy of California said in a Twitter post that "a blank check for more spending will destroy our country. That's why we must negotiate a responsible debt limit increase that gets our fiscal house back in order."

Biden hit back at Republicans on the debt Wednesday, highlighting the new House majority's plans to extend expiring tax cuts signed into law under Trump and repeal tax increases on high earners and corporations that Biden signed into law last year, which he said would add $3 trillion to deficits.

Speaking to union workers in Lanham, Maryland, Biden said Republicans threatened to end much of the bipartisan accomplishments from the past two years.

"Here's the deal," the president added. "If Republicans tried to take away people's health care, increase costs for middle-class families and push Americans into poverty, I'm going to stop them."

America's $31.4 trillion national debt is the product of policy choices and economic shocks, largely since the turn of the century, when the federal government last spent less money than it received in tax revenues. Tax cuts signed into law by Presidents George W. Bush, Barack Obama and Donald Trump reduced government revenues. Wars in Iraq and Afghanistan started under Bush were not offset by tax increases. Obama, Trump and Biden signed into law trillions of dollars of emergency spending to combat the 2008 financial crisis and the 2020 pandemic recession.

The new report confirmed what analysts have predicted for years: that the costs of providing Social Security and Medicare benefits to retiring baby boomers are set to grow rapidly in the decade to come.

"The warning is that the fiscal trajectory is unsustainable," Swagel told reporters at a briefing Wednesday afternoon.

The budget office director also noted that it would be difficult for lawmakers to balance the budget in 10 years without making changes to Social Security and Medicare.

The report also showed the degree to which the Fed's campaign to tame high inflation, by quickly and sharply raising interest rates, will drive up federal borrowing costs in the coming years. The Fed has raised rates to a range of 4.5% to 4.75% from near-zero a year ago and is expected to continue increasing borrowing costs over the next few months.

Since May, when the budget office last issued forecasts, the government's short- and long-term borrowing costs have grown significantly. The budget office now predicts that federal interest costs will total $10.4 trillion over the next decade, up from $8 trillion. Those costs will be partially offset by about $1 trillion in increased tax revenues that stem from high inflation driving up nominal incomes for workers.

"This new report makes clear just how vulnerable we are to a vicious cycle of higher interest payments, requiring more borrowing and ever more debt and interest," said Michael A. Peterson, chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint.