(MENAFN– The Rio Times) The U.S. government is facing challenges as debt interest costs rise to levels not seen since the 1990s. This situation raises concerns about future policies for the next administration.
In the fiscal year that ended in September, the U.S. Treasury spent $882 billion on interest payments, which is about $2.4 billion daily and 3.06% of the GDP.
Several factors, including high budget deficits, increased Social Security and Medicare expenses, COVID-19 spending, and the 2017 tax cuts, have driven up interest costs. Additionally, inflation-led interest rate hikes have increased government borrowing costs.
The interest burden now exceeds Department of Defense spending and takes up nearly 18% of federal revenue, nearly double from two years ago.
This financial situation poses a challenge for the next administration, especially with a divided Congress that could hinder spending plans. High interest payments might slow economic growth by affecting private investment. The Congressional Budget Office warns that for every dollar of deficit spending, private investment could drop by 33 cents.
Despite Treasury Secretary Janet Yellen’s reassurances, many economists expect rising debt regardless of the election outcome, with the Committee for a Responsible Federal Budget predicting significant debt increases under both major candidates.
The aging population will likely worsen Social Security and Medicare costs, leading to large budget deficits without reforms. Discretionary spending has already fallen to 30% of federal expenditure, down from 70% in the 1960s.
Investors currently seem unconcerned about U.S. fiscal issues, but any change in sentiment could influence future policy decisions. Policymakers will face tough decisions on balancing economic growth, social programs, and debt sustainability.
In summary, the coming years will involve significant debates over tax policies, spending priorities, and the nation’s long-term fiscal health.
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