As Americans focus on this fall’s elections, the upcoming winner of the presidential race will face a daunting fiscal challenge: the national debt, which is on track to reach record levels in the next four years.
A recent update to the federal government’s long-term budget outlook by the nonpartisan Congressional Budget Office (CBO) reveals that budget deficits are projected to grow from about $1.9 trillion this year to over $2 trillion annually starting in 2030, eventually nearing $2.9 trillion by 2034. During this period, the public-held debt is expected to surge from over $28 trillion this year to over $50 trillion by 2034.
When considered as a percentage of the U.S. economy’s gross domestic product (GDP), the public-held debt is projected to increase from 99% of GDP this year to 106% of GDP by 2027. This would surpass the record set in 1946 following World War II. The debt-to-GDP ratio is expected to reach 122% in 2034 and continue rising to 166% by 2054, and beyond.
As the national debt escalates, the risk of a debt crisis—where investors lose confidence in the U.S. government’s ability to repay its debt—also increases. Such a scenario would likely drive up interest rates, making it more expensive to service the existing debt, thereby heightening the risk of default. Although the exact tipping point is uncertain, the Congressional Research Service suggests that debt-to-GDP ratios of 80% to 200% are within the danger zone for a crisis. The Penn-Wharton Budget Model has noted that U.S. public-held debt cannot exceed about 200% of GDP even under favorable market conditions.
“We are not now at an immediate risk of a fiscal crisis, but the rising national debt makes one more likely, and also makes us less prepared to address other unexpected future crises,” the nonpartisan Peterson Foundation told FOX Business.
The grim budgetary outlook presents a series of fiscal policy deadlines and changes slated for 2025, offering lawmakers and the public a chance to discuss reforms. The first major deadline arrives on January 1 when the national debt limit, suspended in June 2023, is reactivated. This will prompt the Treasury Department to employ “extraordinary measures” to stave off default for several months while Congress works on the next debt limit increase or suspension.
Next year will also mark the expiration of budget caps included in the Fiscal Responsibility Act, which suspended the debt limit and capped discretionary spending through fiscal year 2025. Congress will need to decide whether to retain, let lapse, or impose more stringent requirements on these spending caps during their annual appropriations debates.
Moreover, several provisions of the Trump tax cuts, known as the Tax Cuts and Jobs Act, are set to expire at the end of next year. This law was crafted using the budget reconciliation process, which allows lawmakers to enact fiscal policies on a party-line basis but includes a 10-year budget constraint that led to the inclusion of sunset provisions to comply with the rules.
Marc Goldwein, senior vice president and policy director at the nonpartisan Center for a Responsible Federal Budget (CRFB), emphasized the necessity for lawmakers to consider reforms in light of the numerous fiscal issues on the horizon. “We’ve got the debt limit coming back, the [Fiscal Responsibility Act] spending caps expiring, a bunch of tax cuts expiring. So I don’t know how you could make it through next year and not have a conversation about fiscal policy – it’s so central to everything that’s going on and people are feeling it in their pocketbooks when they’re facing higher mortgage rates and higher costs at the grocery store,” Goldwein said.
Rachel Snyderman, managing director of the Bipartisan Policy Center’s Economic Policy Program, echoed these sentiments, highlighting the “immense opportunity for lawmakers to lead the year with fiscal responsibility front and center.” She added, “It’s really time for Congress to take stock of the fiscal situation and on a bipartisan basis, promote policies that can grow the economy, support American families and workers, but be underpinned by fiscal responsibility. That’s going to take looking at both the revenue and spending side of the equation.”
Addressing the broader fiscal issues will also necessitate reforms to the main mandatory spending programs, Social Security and Medicare. These programs are funded by payroll taxes and reserves in their trust funds, which are projected to be depleted in about a decade. Social Security’s trust funds are expected to be exhausted by 2035, at which point only 83% of benefits will be payable. Medicare’s trust fund for hospital care is projected to be depleted by 2036, reducing payable benefits to 89%.
Despite these looming deadlines, there has been little public consensus or political will to reform these programs amidst the contentious election climate. Both President Joe Biden and former President Donald Trump have stated that they would leave Social Security untouched in a second term. “We have not found a public consensus on reforming Social Security and Medicare to ensure that benefits aren’t cut when their primary trust funds are depleted,” Snyderman noted, urging policymakers to consider potential reforms sooner rather than later.
The debate over the federal government’s fiscal woes is complicated by starkly different views between Democrats and Republicans on the causes and remedies. “The fundamental problem that this country has is a spending problem,” said David McGarry, policy analyst with the conservative Taxpayers Protection Alliance. He criticized Democrats for suggesting that increasing taxes on the wealthy would solve the fiscal issues, calling it “simply untrue.”
Conversely, Brendan Duke, senior director for economic policy at the liberal Center for American Progress, argued, “We can stabilize the fiscal outlook and keep borrowing costs at manageable levels if we are willing to reverse the mistake of two and a half decades of unpaid for tax cuts tilted to the wealthy and corporations. Requiring that they pay their fair share is sufficient to stabilize the fiscal outlook without reducing low- and middle-income Americans’ living standards.”
The Fiscal Commission Act, a bipartisan proposal approved earlier this year by the House Budget Committee, may serve as a catalyst for a debate on these issues. The Act proposes a 16-member panel to develop recommendations to stabilize the debt-to-GDP ratio, improve trust fund solvency, and balance the budget. Although it has not yet received a floor vote in Congress, its potential enactment could spur the necessary discussions.
“Bipartisan policies are much more durable, they’re much more sustainable, they’re much more likely to make it through a Senate that’s almost always going to have at least 41 members from the opposing party,” Goldwein said. Snyderman added, “There are hard choices that need to be made, but the solutions are there and they are easier to take care of now than if we allow the situation to get worse and kick the can down the road.”
