CBO Raises 2024 Federal Budget Deficit Forecast by $400 Billion
The Congressional Budget Office (CBO) has updated its projection for the U.S. federal budget deficit for the fiscal year 2024, increasing it by $400 billion from its previous estimate in February, to now $1.9 trillion. This elevation has been attributed to various factors, including $95 billion in new defense spending related to the conflicts in Ukraine and Israel and support for military initiatives in the Indo-Pacific. Additionally, a significant expense is coming from the extension of eligibility for student debt forgiveness by President Biden, which adds $145 billion to the deficit.
Moreover, the recovery of $70 billion less than expected due to bank failures, combined with $50 billion unforeseen rise in Medicaid costs and $60 billion in new discretionary spending, has further strained the budget. A crucial concern highlighted by the Wall Street Silver account and the Federal Reserve is the skyrocketing interest payments on the national debt. These payments are forecasted to soon exceed both Social Security payments and total spending on national defense, potentially reaching more than $1 trillion annually by 2026.
This current financial trajectory, characterized by continued rise in spending, has led to criticisms towards the Biden administration for not scaling back to pre-COVID expenditure levels. Major legislations under Biden like the $1.9 trillion American Rescue Plan, the $1 trillion infrastructure bill, and the inflation Reduction Act have significantly contributed to the national debt. The inflation brought on by such high levels of deficit spending prompted the Federal Reserve to raise interest rates in an attempt to manage the situation. This situation draws concern regarding the sustainability of America’s fiscal policies, with many calling for a thoughtful deficit reduction strategy to manage the growing economic and national security risks.
By Randy DeSoto June 18, 2024 at 4:05pm
The Congressional Budget Office on Tuesday released a revised projected federal budget deficit of $1.9 trillion for fiscal year 2024.
That is an increase of about $400 billion from its February estimate the agency said.
The CBO attributed the rise in the deficit to new spending passed since its last projection, including the $95 billion defense appropriations for the wars in Ukraine and Israel, as well as shoring up allied military preparedness in the Indo-Pacific region.
Other large drivers of the increase are President Joe Biden making more eligible for student debt forgiveness, with a price tag of $145 billion. Additionally, the federal government recovered $70 billion less in funds stemming from bank failures.
Further, Medicaid costs came in $50 billion higher than expected, and the federal government passed $60 billion more in new discretionary spending programs.
A primary component of the federal budget deficit overall is increased interest payment costs in servicing the national debt.
The Wall Street Silver account on X highlighted that the U.S. is on pace for more than $1.2 trillion in interest payments on the federal debt over the next 12 months.
“Within the next few years, interest on the debt will exceed Social Security payments and become the largest item in the budget,” Wall Street Silver wrote.
Everyone is posting that the annualized number is about $1.059 trillion.
However the interest on the debt for just May 2024 was $103 billion. Debt will grow another $2 trillion or more in the next 12 months.
We are already on pace for over $1.2 trillion in annualized payments… https://t.co/ZF0yrmHmJm
— Wall Street Silver (@WallStreetSilv) June 18, 2024
Does the deficit pose a major threat U.S. national security?
The post included a graphic from the Federal Reserve showing the U.S. interest payments this year will exceed the total cost of funding the Defense Department, which has been the largest single ticket item besides the entitlement programs of Social Security and Medicare.
The nonpartisan Committee for a Responsible Federal Budget further broke the interest payment number down for the fiscal year, which ends on Sept. 30.
“At a projected $870 billion, interest will surpass total spending on national defense ($822 billion) in 2024 and grow well beyond the defense budget over time,” the CRFB said.
Further, it said, “Interest costs will also slightly exceed net Medicare spending ($851 billion) this year and remain in line with Medicare costs in future years. That would make interest the second largest line item in the budget after Social Security.”
The organization projected that interest payments on the national debt will exceed $1 trillion per year by fiscal 2026.
By way of comparison, it noted net interest payments on the debt were $223 billion in fiscal year 2015 and $352 billion in fiscal year 2021, which included Biden’s first nine months in office.
The reason interest payments have exploded is the massive rise in spending under Biden and the Democrats in Congress. They never returned the country to pre-COVID levels.
Some major new spending that passed under Biden included the $1.9 trillion American Rescue Plan, which had no Republican support in Congress; the $1 trillion infrastructure bill, which garnered some GOP support in the Senate and a handful of members in the House; and the Inflation Reduction Act, which had no GOP backing.
The “green” initiatives included in the IRA are costing almost three times more than the administration forecast, Bloomberg reported in August 2023.
In April 2023, researchers at the University of Pennsylvania’s Wharton School of Business, working with the investment firm Goldman Sachs, updated their estimated cost of the legislation’s green initiatives from $385 billion over a 10-year period to more than $1 trillion.
Additionally, the Federal Reserve increased interest rates to combat the 50-year-high inflation the nation experienced due in large part to too much deficit spending, economists on both sides of the political aisle have argued.
The CRFB concluded regarding America’s fiscal situation, “Thoughtful deficit reduction can help to reduce interest costs, both by lowering debt and putting downward pressure on interest rates.”
“Absent such action, debt will represent a growing threat to our economy, our health care system, and our national security,” it said.
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