“Extending the individual income tax portions of the Tax Cuts and Jobs Act (TCJA) is supposed to be a good thing, right? After all, who doesn’t love lower taxes? However, data from the Congressional Budget Office (CBO) predicts that, without accompanying spending cuts, these tax cuts are going to cost the government.
If the cuts continue, it’s possible that “the positive effects of lower taxes would be counteracted by the negative effects of higher debt,” according to a Tuesday report from the Committee for a Responsible Federal Budget (CRFB).
“Despite claims that tax cuts pay for themselves,” the CRFB adds, “analyses from across the political spectrum have found that the economic effects of extending the expiring parts of the Tax Cuts and Jobs Act (TCJA) would offset 1 to 14 percent of the revenue loss – falling well short of the 100 percent needed to pay for itself.”
While the tax cuts would create an economic boost in the short term, increasing gross domestic product (GDP) by around 0.3 percent in 2027 and 2028, the CRFB predicts that the cuts will actually lower projected GDP by 0.08 percent by 2034. Further, the CBO’s data shows that continuing TCJA tax cuts are likely to lead to increasing interest rates over the next decade.
While continuing the cuts “would produce about $90 billion of positive revenue feedback,” according to the CRFB, “those higher interest rates would add $150 billion to the debt, more than counteracting the revenue gains.””
“Unless Congress puts the country on a different fiscal course, Walker believes there is a 70 percent chance of a serious debt crisis before the end of the decade. That crisis would have “serious adverse economic security, national security, diplomatic, and domestic tranquility consequences,” he warned, adding that the middle class would “be affected the most on a relative basis” if standards of living are suddenly hit with a debt-induced shockwave.
This week’s hearing was intended to highlight bipartisan agreement on the seriousness of the federal government’s fiscal problems, said Rep. Jodey Arrington (R–Texas), the committee’s chairman.
“We’ve got major fiscal problems and a completely unsustainable fiscal trajectory. I haven’t heard anyone, Democrat or Republican, witness or member, that [sic] doesn’t accept that fact,” he said. “We won’t know when the dominoes fall on us in a sovereign debt crisis, it’s going to be difficult to put the pieces back together and maintain our global leadership.”
Those remarks echo warnings issued in recent years by governmental entities like the GAO and the Congressional Budget Office, as well as outside groups like the Penn Wharton Budget Model. Since 2015 the gross national debt has doubled, from $18 trillion to over $36 trillion. Debt held by the public, which most economists consider the more significant measure, sits at more than $28 trillion, or 99 percent of GDP. Deficits of nearly $2 trillion are expected for the foreseeable future.”
“the Treasury Department issued another reminder about the cost of doing nothing to change course. The national debt hit $36 trillion—less than four months after surpassing the $35 trillion mark.
Evenly divided, that means every American is now six figures in the red, thanks to the decisions made in Washington, D.C., over the past few decades. The trajectory ahead looks no better. The federal government is on pace to run multitrillion-dollar deficits for the foreseeable future—and that’s the rosy scenario, which assumes no recessions, wars, pandemics, and the like. Measured against the size of the U.S. economy, the debt is approaching the record high set in the final year of World War II. The rising debt means higher annual interest payments that will complicate the federal budget, likely require higher taxes, and make everyone poorer.”
The debt is a huge problem and we need bi-partisan solutions to fix it.
Solutions that the incoming administration have proposed like cutting 70% of the federal workforce: demonize the bureaucracy, will make government function poorly, and are bad ideas.
The United States is doing way better than seemed likely since the end of the Cold War as far as its economic power compared to the rest of the world. Improving efficiency rather than protecting jobs is the best way to maintain prosperity. The federal debt is a major concern.
“Jeff Bezos, Larry Fink and Donald Trump’s Treasury pick Scott Bessent all agree: Turbocharging economic growth is the best route to reining in the U.S.’s massive $36 trillion debt. History is not on their side.
Bessent warns that this is the “last chance” for the country to grow its way out of the record debt without becoming a “European-style socialist democracy.” Fink, who heads the world’s largest asset manager BlackRock, urged the incoming administration in an Election Day op-ed to promote artificial intelligence and infrastructure investments to grow the economy and tame the deficit. And Amazon founder Bezos told economic power brokers at the DealBook Summit this month that the only way to solve the problem is to expand the economy by 3 to 5 percent a year while simultaneously trimming annual deficits.”
…
“That’s a tall order that few modern presidents have managed to achieve for any sustained period. Bill Clinton famously generated budget surpluses while the economy soared at rates of more than 4 percent in the late 1990s. Ronald Reagan brought down deficits in 1984 and 1987 but otherwise ran up the red ink. And Trump himself will face even more significant challenges if he follows through on tax and tariff pledges that budget forecasters say could add $4.1 trillion to $15.6 trillion to the debt over the next decade.
Trump promised during the campaign that a combination of lower taxes, more energy production, looser regulations and punishing tariffs would generate “explosive” growth to pay down the debt. And government budgets would shrink by “trillions,” he said, with Elon Musk and Vivek Ramaswamy tasked with tackling government waste.
But Trump has also vowed that he won’t touch entitlement programs like Social Security and Medicare, which are by far the chief drivers of the debt and are projected to be insolvent by the mid-2030s. Imposing tariffs on imports could trigger reprisals that would harm growth, and even if they didn’t, many economists believe it would take a historic economic boom to meaningfully address the country’s fiscal challenges.
“You can’t improve this with growth,” said Tom Porcelli, the chief U.S. economist at PGIM Fixed Income. “You’d have to have 5 percent growth for a pretty decent amount of time to have any real notable impact.””
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” Fiscal watchdogs and credit-rating agencies have been clanging alarms for years about the U.S.’s growing debt, which is the accumulation of annual budget deficits. Rising deficits — which can be inflationary and push up interest rates — could become more acute as the population ages and spending for mandatory entitlement programs climbs. Even steep cuts to discretionary federal programs wouldn’t make a meaningful dent in the debt without extensive structural reforms.”
“Were Trump to implement Musk’s vision while simultaneously honoring his promise to avoid cutting entitlements and the GOP’s commitment to avoiding defense spending cuts, then he would need to slash all other government programs by 80 percent. That would involve gutting all social services for low-income Americans, food inspections, air safety, health insurance subsidies, and infrastructure investments, among countless other things.
This would abruptly and massively reduce demand in the US economy, potentially triggering a recession.
There is little reason to expect such severe and haphazard spending cuts to benefit the economy in the long term. After all, government investments in education and infrastructure often increase the economy’s growth potential — slashing funding for such programs could impair America’s economic performance in the coming decades.”
“The federal government posted a $1.8 trillion budget deficit during the fiscal year that ended on September 30, despite an increase in tax revenue, thanks to higher spending and the rapid growth of interest costs tied to the $35.6 trillion national debt.”
“big study gave 1,000 low-income people $1,000 per month for three years—no strings attached. What happened?
Not the great things that were promised. After three years of getting $1,000/month, UBI recipients were actually a little deeper in debt than before.
Why? Because they worked less. Their partners did, too.
Some recipients talked about starting businesses, but few actually tried it. Most who said they did start a business waited until the third year of the study—when their free money was about to end.”