The U.S. Congress is under increasing pressure to address the growing budget deficits and national debt after Moody’s warned that political dysfunction could lead to a downgrade in the federal government’s credit rating. With the national debt reaching $33.7 trillion, or 124% of GDP, lawmakers are considering three basic options: raising taxes, cutting spending, or a combination of both.
In response to the rising debt, some lawmakers are calling for the establishment of a commission to tackle the issue and propose realistic solutions. The concern has escalated as interest rates have risen, resulting in a staggering $659 billion in debt payments for the fiscal year 2023, according to the Treasury Department.
Republican Senator Mike Braun, a member of the Budget Committee, emphasized the urgent need for a fiscal commission. He predicts that deficits and debt could become a significant issue in the 2024 elections, as interest payments start to crowd out funding for other federal programs, including defense and homeland security.
Since 2013, the national debt has more than doubled from $16.7 trillion. During this time, Republicans implemented a major tax cut bill, reducing revenues, while both parties supported increased spending, partly in response to the COVID-19 pandemic. Democrats have also expanded social safety net programs.
As a result, Moody’s recently downgraded the U.S. credit rating outlook to “negative” from “stable,” warning that high interest rates would continue to drive borrowing costs higher. Fitch ratings agency also downgraded the U.S. government’s top credit rating to AA+ from AAA in August, citing the congressional standoff that nearly led to defaulting on debts.
Michael Peterson, CEO of the Peter G. Peterson Foundation, a non-partisan group focused on U.S. fiscal problems, advocates for a bipartisan commission as the best approach to address the serious yet solvable fiscal challenges. The foundation has gathered ideas from a dozen experts on potential solutions, including a new tax on greenhouse gas emissions and adjustments to cost-of-living calculations for federal benefit programs.
Economists from the Conference Board, a non-profit business research group, propose reducing the debt-to-GDP ratio to 70% by 2043 through a combination of tax increases and spending cuts. Other recommendations include subjecting high-income earners to higher Social Security taxes and gradually raising the retirement age to 69.
Democratic Senator Joe Manchin and Republican Senator Mitt Romney, both set to retire at the end of next year, have introduced a bipartisan bill to establish a commission that would likely conclude its work by 2025. A similar bill is pending in the House of Representatives.
While Congress has been preoccupied with fights over discretionary program spending, which accounts for only about one-third of total government spending, the biggest drivers of expenditure, such as Social Security and Medicare, have been largely ignored.
However, the idea of a commission raises concerns among progressives. Independent Senator Bernie Sanders, who caucuses with Democrats, warns that it could be a covert means to cut Social Security. Sanders instead advocates for lifting the cap on taxable income to extend the lifespan of the Social Security trust fund.
Several lawmakers argue that a commission can only be successful if it has the power to compel Congress to act on its recommendations, potentially forcing Republicans to reconsider their longstanding opposition to tax increases.
In conclusion, the U.S. Congress is facing mounting pressure to address the rising budget deficits and national debt. A combination of tax increases, spending cuts, and the establishment of a bipartisan commission are being considered as potential solutions. However, concerns persist over potential cuts to social programs and the need for the commission to have the authority to enforce its recommendations.