The U.S. national debt is on track to grow by an alarming $23.9 trillion over the next decade, according to projections from the Congressional Budget Office (CBO). This dramatic increase in debt paints a sobering picture for the country’s fiscal future and raises important questions about how the U.S. will manage its financial obligations in the coming years.
With the Trump administration promising tax cuts and a more aggressive approach to reducing deficits, these projections reveal the scale of the challenge ahead. In this article, we’ll break down the key findings of the CBO’s latest report and what it means for the U.S. economy.
What Is Driving the Growth in National Debt?
The CBO’s analysis shows that U.S. debt is set to increase by $23.9 trillion by 2035. While this is a staggering figure, it does not include the cost of extending Trump’s tax cuts or other potential future fiscal policies. These tax cuts are expected to add trillions more to the national debt.
Here’s what we know so far:
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Rising Tax Deficits: As the U.S. government continues to overspend, the gap between revenue and expenditure is widening. The CBO projects that, by 2035, annual deficits will reach 6.1% of GDP, a significant increase from the historical average of 3.8% over the past 50 years.
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Net Interest Costs: A major contributor to the growing debt is the increasing cost of interest on the national debt. As the debt grows, the cost of servicing it also rises, potentially matching or surpassing the costs of essential government programs like defense and social welfare.
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Tax Cuts and Revenue Gaps: Trump’s proposed tax cuts, including the extension of the 2017 tax cuts, could exacerbate the situation. With Scott Bessent, Trump’s nominee for Treasury Secretary, warning of an economic crash without these cuts, the question remains: Will cutting taxes without addressing spending create a sustainable path for the U.S. economy?
How the U.S. Government’s Spending Is Affecting the Debt
A closer look at the CBO’s report reveals that the biggest drivers of rising national debt are mandatory spending programs and interest on the national debt. Let’s break down the key areas contributing to this growth:
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Social Security & Medicare: These two programs are growing rapidly due to the country’s aging population. With Baby Boomers retiring and living longer, the costs of Social Security and Medicare are projected to continue rising, significantly outpacing inflation and economic growth.
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Defense Spending: National security continues to consume a large portion of the U.S. budget. While there are discussions around cutting defense spending, political realities make this a difficult area to address, as national security is a top priority for both parties.
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Discretionary Spending Cuts: The CBO predicts a reduction in discretionary spending (on things like infrastructure, education, and public services), which will likely fall to around 5.3% of GDP in the coming years, down from the long-term average of 7.9%. However, even with these cuts, the debt burden will continue to grow as mandatory spending rises.
The Economic Impact of U.S. Debt Growth
So, what does this mean for the average American? The rising national debt could have several consequences for both the U.S. economy and the people who depend on government services.
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Higher Taxes in the Future: As the debt rises, the government will need to find ways to pay off the interest on that debt. One way to do this is by increasing taxes, which could place an even greater burden on American families and businesses.
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Reduced Government Spending on Public Services: With so much of the budget consumed by debt service, funding for other government services may shrink. This could mean fewer investments in education, infrastructure, and social welfare programs, which will have a direct impact on millions of Americans.
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Increased Borrowing Costs: As the national debt grows, the U.S. government may face higher borrowing costs. This could result in higher interest rates across the economy, affecting everything from mortgages to business loans. If the U.S. government must borrow more to fund its obligations, it could create a vicious cycle of increasing debt and rising borrowing costs.
A Glimmer of Hope: Tax Revenue Increases
Despite the grim outlook, there is some positive news. The CBO’s report suggests that the increase in taxable income over the next decade will help to reduce the deficit, at least in the short term. The report predicts that tax revenue will increase, narrowing the deficit through 2027.
Here’s a quick breakdown of the projected trends:
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Higher Tax Revenues: Due to growth in taxable income and economic expansion, tax collections are expected to rise, leading to a temporary narrowing of the deficit.
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But, Not Enough to Close the Gap: While tax revenues are projected to grow, they still won’t be enough to keep up with the ever-growing costs of entitlement programs like Social Security and Medicare. The gap between revenues and spending will widen again after 2027, especially as the U.S. population continues to age.
What Needs to Be Done?
The CBO report highlights the need for a long-term fiscal strategy to prevent the U.S. from spiraling into unsustainable debt. So, what steps can policymakers take to address these issues?
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Reform Social Security and Medicare: There is broad agreement that these programs need to be reformed to ensure their long-term sustainability. However, making changes to these programs is politically difficult, as they are so popular with voters.
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Reduce Discretionary Spending: While it’s unlikely that large cuts in national security or defense spending will happen, cuts to other discretionary spending could help to alleviate some of the debt burden. This would require tough decisions and trade-offs on what services the government will prioritise.
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Comprehensive Tax Reform: A combination of tax reform and targeted tax increases could help to balance the books. However, any tax policy changes will need to be carefully considered to avoid damaging the economy or burdening middle-class families.
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Control Interest Costs: As the national debt continues to grow, the U.S. must find ways to manage interest costs. This could involve tightening fiscal policies or renegotiating the terms of government borrowing.
Conclusion: The Road Ahead
The U.S. national debt is projected to grow by $23.9 trillion over the next decade, and there are no easy solutions to this growing fiscal challenge. While the Trump administration’s tax cuts may offer short-term relief, they will ultimately add to the debt unless paired with major spending cuts.
The road ahead will be difficult, and policymakers will need to make tough decisions about how to balance the budget, manage growing entitlement costs, and ensure the long-term fiscal health of the nation.
If we fail to address the growing national debt, future generations will be left with a financial burden that may be impossible to overcome.
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Photo credit: The Washington Post
