The total amount of treasury bond of the United States climbs. The financial crisis may be imminent
According to the New York Times website on September 18th, the total national debt of the United States exceeded $33 trillion for the first time on Monday, which clearly exposed the instability of the US fiscal trajectory. Washington is currently facing the risk of government shutdown this month due to another federal spending dispute.
The US Treasury Department pointed out this milestone figure in its daily report detailing the national balance sheet. At the same time, Congress is making efforts to provide funding to the government before the September 30th deadline, but it seems to be struggling. Unless Congress passes more than a dozen funding bills or agrees to a brief extension of federal funding at its current level, the United States will face the following situation: the government will shut down for the first time since 2019.
Federal spending exceeds expectations
Last weekend, Republicans in the House of Representatives discussed a short-term proposal that would cut spending for most federal agencies. But the hope of breaking the deadlock on Capitol Hill is slim. Republicans still have differences in their demands, and regardless of the compromise they reach internally, Democrats are unlikely to support them.
This year, the debate over debt in Congress has intensified, exacerbated by the long-standing stalemate caused by the national debt ceiling issue.
This struggle ultimately ended with a bipartisan agreement to suspend the debt ceiling for two years and reduce federal spending by $1.5 trillion over 10 years. The specific method is to freeze some funds that are expected to increase next year, and then limit the expenditure growth rate in 2025 to 1%.
However, by the end of this decade, even taking into account the newly passed expenditure reduction measures, the debt is still likely to reach $50 trillion as debt interest rates increase and the cost of national social security projects continues to rise.
The goal of slowing US debt growth remains daunting.
The cost of some federal spending plans approved by the Biden administration is expected to be higher than previously anticipated. Previously, it was expected that the 2022 Inflation Reduction Act would cost approximately $400 billion over 10 years, but estimates from the budget model of the Wharton School of Business at the University of Pennsylvania suggest that the cost of the bill could exceed $1 trillion due to strong industry demand for the generous clean energy tax credits provided by the bill.
The aid program during the pandemic is still consuming federal government funds. The US Internal Revenue Service announced last week that the tax incentives for employee retention tax credits were originally expected to cost about $55 billion, but have so far cost the federal government $230 billion. Due to concerns about fraud and abuse, the National Taxation Bureau is freezing the plan.
Government revenue growth encounters resistance
Meanwhile, President Biden has made several attempts to increase income through tax reforms, but has encountered resistance.
At the end of 2022, the National Taxation Bureau postponed the effective date of a new tax policy by one year. This policy requires users of digital wallets and e-commerce platforms to start reporting small transactions to the institution, which was originally expected to generate approximately $8 billion in additional tax revenue within 10 years.
Last month, the National Taxation Bureau postponed the implementation of a new regulation to prevent high-income individuals from depositing additional funds into their 401 retirement accounts for two years. The institution stated that these two years are an "administrative transition period".
At the same time, lobbyists are desperately searching for loopholes in the newly enacted taxes. The government has established a 15% replacement minimum tax for businesses, aimed at ensuring that wealthy businesses cannot pay taxes at single digit rates by cleverly using deductions. However, many companies have been urging the Ministry of Finance to add exceptions. This tax is different from the global minimum tax system that most countries other than the United States are striving to adopt.
The financial crisis is imminent
Efforts to increase revenue and reduce expenses have encountered resistance, which has raised the vigilance of US budget oversight agencies. These institutions are concerned that a fiscal crisis is imminent.
"As we have recently seen with inflation and interest rate growth, the cost of borrowing may suddenly rise rapidly," said Michael A. Peterson, CEO of the Peter Peterson Foundation, which advocates for fiscal tightening. "The interest cost for the next 10 years will exceed $10 trillion, and this compound interest fiscal cycle will only continue to harm our descendants."
There are still differences between Republicans and Democrats in the House and Senate on how to avoid a government shutdown. Members of parliament have urged leaders to focus on developing a bill as a temporary measure to keep the government running after September 30th.
But the deficit continues to increase. A report from the US Treasury Department last week showed a deficit of $1.5 trillion for the first 11 months of this fiscal year, a year-on-year increase of 61%.
US Treasury Secretary Janet Yellen said in an interview with Consumer News and Business Channel on Monday that she is satisfied with the overall direction of the country's finances, as the proportion of interest costs to the economy is still controllable. However, she pointed out that it is still important to be mindful of future expenses.