The United States’ National Debt Reaches a New High of $34 Trillion Amidst Upcoming Congressional Budget Battle

The United States’ gross national debt has exceeded $34 trillion, setting a new record and highlighting the upcoming fiscal and political challenges the country faces in improving its financial position.

The U.S. Treasury Department’s recent report highlights the tension in Washington, D.C., over finances, which could lead to parts of the government shutting down without an annual budget in place. In June, a bipartisan agreement temporarily lifted the nation’s debt limit until January 2025, avoiding a historic default.

The national debt reached $34 trillion much earlier than expected, surpassing projections from the Congressional Budget Office’s January 2020 forecast, which had anticipated this figure in fiscal year 2029. The debt’s rapid growth was fueled by the pandemic’s economic shutdown starting in 2020, leading to significant borrowing under Presidents Donald Trump and Joe Biden to stabilize and revive the economy. This recovery, however, brought inflation and higher interest rates, increasing the cost of servicing the debt.

Economist Sung Won Sohn expressed concern over the current fiscal approach, warning of dire future consequences. The gross debt figure includes debts the government owes to itself, but policymakers typically focus on the public-held debt, which is about $26.9 trillion, roughly the size of the U.S. GDP.

The Congressional Budget Office predicts that by 2053, the publicly held debt will equal a record 181% of U.S. economic activity. Currently, the national debt doesn’t seem to burden the U.S. economy, as investors continue to lend to the government. However, its trajectory could threaten national security, Social Security, and Medicare in the coming decades.

Foreign nations, including China, Japan, South Korea, and European countries, have reduced their holdings of U.S. debt, with foreign ownership dropping from 49% in 2011 to 30% by the end of 2022. Michael Peterson, CEO of the Peterson Foundation, warns that continued borrowing could be a significant concern for policymakers.

The national debt amounts to about $100,000 per U.S. resident, but its immediate impact on economic growth is not apparent. Long-term risks include higher inflation, elevated interest rates, and more challenging decisions regarding Social Security, Medicare, and Medicaid.

Both Republicans and Democrats have expressed the need for debt reduction, but their approaches differ. The Biden administration advocates for tax increases on the wealthy and corporations, along with enhanced IRS budgeting to reduce unpaid taxes. Republicans, on the other hand, seek substantial cuts in non-defense government spending and the repeal of clean energy initiatives from the Inflation Reduction Act. They also aim to reduce Biden’s IRS funding and further cut taxes, which could exacerbate the debt issue.

The differing strategies of both parties will likely be a focal point in the upcoming presidential election. White House spokesman Michael Kikukawa has criticized Republican policies for contributing to the debt, while Republican lawmakers blame the Biden administration for the 2022 inflation surge that affected the president’s approval ratings.

Investors and rating agencies have expressed growing concern about the unsustainable debt trajectory, with Shai Akabas from the Bipartisan Policy Center warning of potential severe consequences, including interest rate spikes, recession, unemployment, and inflation.