(MENAFN– The Rio Times) The US government is facing a major challenge with debt interest costs hitting levels not seen since the 1990s, raising concerns for future policy. In the year ending September, the Treasury spent $882 billion on net interest—around $2.4 billion daily—making up 3.06% of the GDP.
Several factors contributed to these rising costs. High budget deficits due to increased Social Security and Medicare spending, along with COVID-19 relief measures, have significantly boosted debt. Tax cuts from 2017 have also limited government revenue, and inflation-led rate hikes have further increased borrowing costs.
Interest payments now exceed the Department of Defense’s military spending and account for nearly 18% of federal revenue, almost double from two years ago. This situation poses challenges for the next administration, especially with a divided Congress.
The Federal Reserve’s efforts to lower interest rates provide some relief, but overall interest costs are burdening the $27.7 trillion public debt. Economists warn that high interest payments may hamper economic growth. The Congressional Budget Office estimates that every dollar in deficit spending reduces private investment by 33 cents.
Despite Treasury Secretary Janet Yellen’s reassurances, many expect rising debt regardless of the upcoming election’s outcome. The Committee for a Responsible Federal Budget foresees significant debt increases under either major candidate’s plans. As the aging population drives up costs for Social Security and Medicare, budget deficits may grow without reforms.
Discretionary spending now accounts for only 30% of federal expenditure, down from 70% in the 1960s. Investors currently appear unconcerned about US fiscal issues, but a shift in sentiment could impact future policies. In summary, upcoming years are likely to involve heated debates on tax policies, spending priorities, and the overall fiscal health of the nation.
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