US Debt Hits Record High Amid Deepening Budget Conflict
The size of the U.S. national debt has surpassed $33 trillion for the first time in history. As political conflicts over next year's budget intensify, the rapid increase in national debt has raised the risk of another federal government shutdown. The Republican Party, which has pressured the Democrats by linking budget spending to national debt expansion, is expected to take a hardline stance based on the debt surpassing $33 trillion.
According to the U.S. Treasury Department on the 18th (local time), the federal government debt balance reached $33 trillion (approximately 43,600 trillion KRW), marking an all-time high. The debt size has rapidly increased in just a few months from $31.4 trillion at the end of June, when extreme standoffs between the two parties over raising the debt ceiling occurred.
The New York Times (NYT) pointed out, "Washington is once again facing the possibility of a shutdown as the fight over federal government spending continues," adding, "The news that the national debt has soared to $33 trillion starkly illustrates the unstable trajectory of U.S. government finances."
The ongoing budget negotiations have reached a deadlock as the Democrats and Republicans have not narrowed their differences over the scale of fiscal spending. The U.S. Congress approves the next year's budget through 12 appropriations bills annually, but currently, the House of Representatives has passed only one of the 12 bills, indicating stalled negotiations. The House Republicans' hardliners are pressuring that there will be no concessions unless the 2024 fiscal year government spending is reduced to last year's level ($1.47 trillion), preventing a breakthrough in negotiations.
If Congress fails to pass the budget for the next fiscal year by the end of this month (September 30), before the start of the 2024 fiscal year, the federal government will shut down at 12:01 a.m. on October 1. In this case, temporary layoffs of federal employees except for essential personnel in defense, health, and transportation sectors will begin, and all public programs except for core services will be suspended. If the federal government enters a shutdown, it will be the first work stoppage in four years since the Trump administration in 2019.
Earlier, Congress agreed in June to raise the debt ceiling for two years while cutting spending except for defense and security sectors. However, even reflecting the spending cuts, the NYT projected that due to increased debt interest and social safety net program expenditures, the national debt will reach $50 trillion by 2030.
Additionally, the Inflation Reduction Act (IRA), which will cost $400 billion over ten years, and the large-scale fiscal spending during the COVID-19 pandemic are also placing a heavy burden on government finances, the NYT noted.
The Biden administration's plan to secure additional funds through major tax increases has faced tax resistance and has not achieved results. The implementation of mandatory reporting for small transactions by users of digital wallets and e-commerce platforms, which was expected to secure $8 billion in additional tax revenue over the next ten years, has been delayed, and the application of the increased minimum corporate tax rate (from 19% to 25%) has also been postponed.
The IRA includes a provision to apply a 15% minimum effective tax rate to large corporations earning more than $1 billion annually, but strong lobbying by large corporations has prevented finalization of details regarding corporate profit calculations and tax law provisions for over a year since its enactment.
As concerns over the expanding fiscal deficit grow, U.S. Treasury Secretary Janet Yellen said in an interview with CNBC on the same day, "The share of interest costs in the national finances remains at a 'manageable' level," and expressed that she is not worried about the current state of national finances.
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