(MENAFN – The Rio Times) The US government is grappling with high debt interest costs, which are at their highest since the 1990s. This situation raises concerns for future policies of the next administration in Washington.
In the last fiscal year, the US Treasury paid $882 billion in net interest, about $2.4 billion daily, representing 3.06% of the country’s GDP.
The surge in interest costs is linked to high budget deficits, primarily due to increased Social Security and Medicare expenses and significant spending during the COVID-19 pandemic. The 2017 tax cuts have also reduced government revenue, while inflation has raised borrowing costs.
Interest payments now exceed the Department of Defense’s military budget and account for nearly 18% of federal revenue, almost double compared to two years ago. This financial situation poses challenges for the upcoming administration, especially with a likely divided Congress that could hinder spending plans.
The Federal Reserve’s recent interest rate cuts provide some relief, but overall interest costs contribute to the national debt, which is approaching $27.7 trillion. Economists warn these payments could slow economic growth by limiting private investment.
Treasury Secretary Janet Yellen has minimized concerns, but many analysts expect rising debt regardless of election outcomes. Projections show significant debt increases under both major candidates’ plans, with an aging population likely driving up Social Security and Medicare expenses further. Discretionary spending has shrunk to just 30% of total federal expenditure from 70% in the 1960s.
Currently, investors are not overly worried about US fiscal issues, but any change in sentiment could impact future policies. As the fiscal landscape shifts, policymakers must navigate tough decisions regarding economic growth, social programs, and debt sustainability, leading to intense discussions on tax policies and spending priorities.
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