Rising US debt sparks calls in Congress to establish a special finance committee
Written by Richard Cowan and Moira Warburton
WASHINGTON (Reuters) – The U.S. Congress is facing growing calls to find a way to stop rising budget deficits and debt after Moody’s warned this month that political dysfunction could lead to a downgrade of the federal government’s credit rating.
There is no exact science to the three basic options for dealing with a national debt that has doubled in just the past decade and stands at $33.7 trillion, about 124% of GDP: raise taxes, cut spending, or do some combination of the two.
That has prompted some lawmakers to call for the creation of a commission to do the heavy lifting of coming up with realistic approaches to addressing ballooning debt, a growing concern now that interest rates are rising, resulting in a staggering $659 billion in payments nationally alone. Debt in fiscal year 2023, according to the Treasury Department.
“There is a desperate need for a finance committee,” Republican Sen. Mike Braun, a member of the Budget Committee, said in an interview.
The deficit and debt could become an important issue in the 2024 elections, especially as “the heavy weight of interest payments will start to crowd out everything else,” Brown said, referring to the cost of federal programs ranging from defense to homeland security.
Since 2013, the national debt has doubled from $16.7 trillion. During that period, Republicans passed a major tax cut bill that depressed revenues, while both parties supported increased spending, partly in response to the Covid-19 pandemic. Democrats also worked to expand social safety net programs.
The result was that Moody’s, the credit rating agency, this month lowered its credit rating outlook for the United States from “stable” to “negative.” Moody’s said higher interest rates will continue to push borrowing costs higher.
This followed Fitch Ratings, which in August downgraded the US government’s top credit rating to AA+ from AAA, citing a standoff in Congress that had brought the government close to defaulting on its debt.
“The fiscal challenges we face are serious but also solvable, and a bipartisan commission is the best approach,” said Michael Peterson, CEO of the Peter J. Peterson Foundation, a nonpartisan group that raises awareness of America’s long-term financial problems.
It distributed ideas from dozens of experts on how the committee can provide solutions to curb deficits and debt.
For example, Mark Zandi, chief economist at Moody’s Analytics, which operates independently of its parent company’s ratings business, has proposed a new tax on greenhouse gas emissions and changing the government’s formula for determining cost-of-living adjustments for federal benefit programs.
Economists Dana Peterson and Lori Esposito Murray of the Conference Board, a nonprofit business research group, have proposed a 2043 goal of reducing debt to GDP to 70% through higher taxes and spending cuts. Other recommendations included subjecting high-income earners to more Social Security taxes and gradually raising the age for receiving full retirement benefits to 69 years from the current 67 years.
Democratic Senator Joe Manchin and Republican Senator Mitt Romney, both set to retire from Congress at the end of next year, have sponsored a bill that would create a bipartisan commission that would likely conclude its work in 2025. A similar bipartisan bill exists Republican and Democrat pending review. In the House of Representatives.
Congress has been busy for much of the year in battles over nearly $1.6 trillion in annual spending on “discretionary” programs, such as defense, homeland security, and some social safety net benefits. This represents only about a third of total government spending.
This ignores the biggest drivers of spending, which are “mandatory” programs like Social Security and Medicare.
But the idea raises red flags for progressives. Independent Senator Bernie Sanders, who caucuses with Democrats, said the committee would simply be a “backdoor way to get into cutting Social Security.”
Sanders embraced raising the maximum taxable income to extend the life of the Social Security trust fund.
Several lawmakers said the commission could only succeed if it had the power to force Congress to act on its recommendations, which could prompt Republicans to either move forward or reverse their long-standing opposition to tax increases, if such measures are proposed.
(Reporting by Richard Cowan and Moira Warburton; Editing by Grant McCall)