By Ben Ritz
Just as two years of punishing inflation finally appears to have subsided, new projections from the Congressional Budget Office show another major economic problem on the rise. Thanks to excessive deficit spending that worsened inflation and the interest-rate hikes implemented by the Federal Reserve to bring it under control, the U.S. government is now on track to spend a larger share of economic output on annual interest payments next year than at any other point in our nation’s history. Even worse, these costs are projected to more than double over the next 30 years if current law remains unchanged. And the worst part of all: CBO’s projections are more likely than not to deteriorate further based on the agendas being offered by the two major parties heading into the 2024 elections.
CBO’s Budget and Economic Outlooks have shown for years that government debt was on an unsustainable path. As our population ages, spending on retirement programs such as Social Security and Medicare is growing faster than the revenue needed to fund them. If the federal government continues relying on borrowed money to finance growing structural deficits, an ever-growing share of the federal budget will be spent just servicing past debts. That rising cost draws resources away from other critical public investments our government needs to fund and threatens to dampen economic growth.
Previous reports generally suggested this challenge was a long-term one: Just last summer, CBO estimated that annual interest payments as a percent of gross domestic product would remain below the all-time high they reached in 1991 until 2030. But thanks to an unforeseen spike in borrowing costs last fall, CBO now expects the previous record to be broken in 2025.
