© Reuters. FILE PHOTO: The U.S. Capitol building is seen in Washington, U.S. August 15, 2023. REUTERS/Kevin Wurm//File Photo
By Richard Cowan and Moira Warburton
WASHINGTON (Reuters) – The U.S. Congress faces growing calls to find a way to stem rising budget deficits and debt, following a warning this month from Moody’s (NYSE:) that a Political dysfunction could cause it to lower the federal government’s credit rating.
The three fundamental choices for tackling a national debt that has doubled in the last decade alone to $33.7 trillion, or about 124 percent of GDP, are no rocket science: raise taxes, cut expenses or do a combination of the two.
This has led some lawmakers to call for the creation of a commission to do the heavy lifting and come up with realistic approaches to dealing with exploding debt, a growing concern now that interest rates have risen, producing a staggering $659 billion in payments domestically alone. debt in fiscal year 2023, according to the Treasury Department.
“A budget committee is absolutely necessary,” Republican Senator Mike Braun, a member of the budget committee, said in an interview.
Braun said deficits and debt could become a significant issue in the 2024 elections, especially as “the juggernaut of paying interest will start to crowd out all other things,” referring to the cost of federal programs ranging from defense to internal security.
Since 2013, the national debt has more than doubled, from $16.7 trillion. During this period, Republicans passed a major bill to cut taxes, which reduced revenues, while both parties supported increased spending, partly in response to the COVID-19 pandemic. Democrats have also worked to expand welfare programs.
The result is that rating agency Moody’s lowered its U.S. credit rating outlook from “negative” to “stable” this month. High interest rates would continue to drive up borrowing costs, Moody’s said.
This follows ratings agency Fitch, which in August downgraded the U.S. government’s top credit rating from AA+ to AAA, citing gridlock in Congress that brought the government to the brink of default on its debts.
“Our tax challenges are serious but also solvable and a bipartisan commission is the best approach,” said Michael Peterson, CEO of the Peter G. Peterson Foundation, a nonpartisan group that works to raise awareness of U.S. tax issues. long-term.
He circulated ideas from a dozen experts on how a commission could come up with solutions to bring deficits and debt under control.
For example, Mark Zandi, chief economist at Moody’s Analytics, which operates independently of its parent company’s ratings activities, has proposed a new tax on greenhouse gas emissions and a change to the government formula for determining adjustments. cost of living for federal benefit programs.
Economists Dana Peterson and Lori Esposito Murray of the Conference Board, a nonprofit business research group, have suggested a 2043 goal of reducing the debt-to-GDP ratio to 70% through tax increases and spending reductions. Other recommendations included subjecting high-income earners to more social security contributions and gradually raising the age for full retirement from the current 67 to 69.
Democratic Sen. Joe Manchin and Republican Sen. Mitt Romney, who are both due to retire from Congress at the end of next year, have sponsored a bill that would create a bipartisan commission that would likely finish its work in 2025. Similar bipartisan legislation is pending. in the House of Representatives.
Congress has been consumed for much of the year with fights over annual spending of about $1.6 trillion on “discretionary” programs, such as defense, homeland security and some social benefits. This represents only about a third of overall government spending.
This ignores the major drivers of spending, “mandatory” programs such as Social Security and Medicare.
But the idea raises red flags among progressives. A commission, said independent Sen. Bernie Sanders, who is caucusing with Democrats, would simply be “a backdoor way to cut Social Security.”
Sanders agreed to lift the taxable income cap to extend the life of the Social Security trust fund.
Several lawmakers said a commission could only succeed if it had the power to force Congress to act on its recommendations, which could prompt Republicans to either accept or abandon their long-standing opposition to state hikes. taxes, if such measures were suggested.