While newly released numbers from the Congressional Budget Office do not project a recession in 2022, the office's long-term analysis projects a sharply increasing national debt that the Biden administration, or a future one, will need to tackle.
President Joe Biden has bragged about reducing the deficit by $1.5 trillion from 2021 to 2022, but that still leaves an annual debt of nearly $1 trillion that will only increase over time.
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"Overall, it's an encouraging report if you're looking at the next year, and it's a very troubling one if you look beyond that," said Marc Goldwein, senior policy director with the Committee for a Responsible Federal Budget. "It surprised me how rapidly deficits are projected to go back up after 2022."
The CBO expects the national debt to drop to 96% of gross domestic product in 2023, owing to a combination of economic recovery and high inflation, which effectively lowers past debts. But the number is projected to reach a record high of 110% by 2032, with a total of $15.7 trillion in deficits added over the next decade.
Goldwein has criticized Biden's previous boasts about reducing the year-over-year deficit, mostly because his March 2021 American Rescue Plan is the reason deficits were so high to begin with.
The White House repeated that talking point when asked about the CBO projection Thursday.
"The CBO projects our deficit will fall by $1.7 trillion after it fell by $350 billion just last year," White House press secretary Karine Jean-Pierre said. "That's after the deficit increased every single year President Trump was in office."
Deficits are much lower than they were during 2020 and 2021 but are now more or less back in line with where they were trending before lockdowns and restrictions upended the economy for those two years.
"Compared to the pandemic, the fiscal situation looks better today," said Goldwein. "It overall looks the same as pre-pandemic, with about a trillion dollars a year in deficit."
The debt projections would likely be even higher if Biden had succeeded in passing the $3.5 trillion Build Back Better Act last year. Even so, Biden needs to enact policies that won't continue to fuel rising debt and inflation, Goldwein argues, such as ending the student loan repayment pause in August as scheduled and refusing to lump any of that debt on to the public coffers.
Another way to help would be to lower drug prices, which would reduce some of the massive amounts spent each year on Medicare and Medicaid, Goldwein said.
The CBO projection isn't encouraging in the long term but could prove to be too optimistic if the United States does fall into a recession. Goldman Sachs predicts a 35% chance of a recession in the next two years, while Wells Fargo’s economic model projects a 30% chance of a recession occurring in the next six months alone.
"The CBO has inflation at about 5% this year and then dropping back down into the 2% range. I'm a little nervous about that projection," said Bill Hoagland, senior vice president with the Bipartisan Policy Center. "That's a little more optimistic than I'd expect going forward."
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In other words, the deficit is projected to reach a historically high 110% of GDP within the next decade, even if a recession or major military conflict fails to materialize.
Deficit spending has become a bipartisan norm, rising under both Republican and Democratic presidents. To really rein it in, Hoagland argues, will take stabilizing entitlement programs such as Medicare, Medicaid, and Social Security, long considered the untouchable "third rail" of politics, which collectively constitute roughly 65% of all federal spending.
"It's a cliche, but this is a tax on future generations," said Hoagland, a CBO alumnus. "Somebody's going to have to pay for this debt. It means either a lower standard of living, more inflation, or more taxes. We're basically putting a tax on future generations."