House Budget Republican Leader Jason Smith (MO-08) released the following statement after the Congressional Budget Office (CBO) released its latest long-term budget outlook detailing the nation’s dismal fiscal health, and the Federal Reserve increased interest rates by 75 basis points – the fourth increase since March.
“Washington Democrats’ $2 trillion American Rescue Plan ignited inflation, which has risen 13.8 percent since Joe Biden took office. For 15 straight months, Americans’ real wages have declined under President Biden while prior to Biden entering office, real wages had increased 102 of the previous 105 months. The President’s failed economic policies have left the Federal Reserve no choice but to raise interest rates to combat his inflation crisis. Rates have now gone up 75 basis points this year, the fastest in 40 years. The economic news of today is further worsened by the fact that in CBOs latest report on America’s long-term budget outlook we see rising interest rates contributing to debt payments consuming more and more of our yearly budget, crowding out other investments for our seniors, our veterans and our national security.,” said House Budget Committee Republican Leader Smith. “Like President Biden’s inflation crisis, rising interest rates are another cost imposed on American families, small businesses, and farmers because of Washington Democrats’ reckless spending.
“CBO’s long-term outlook shows that interest payments on the debt are now projected to eclipse yearly spending on Medicare by 2046 and Social Security by 2049. Within 30 years, our national debt will reach 185% of GDP. Roughly 60 percent of the debt increase in this most recent long-term budget outlook report is attributable to interest payments alone. The last time inflation was this high, rates were above 10 percent. That scenario would be even more catastrophic for our country’s economic growth and bottom line.
“While federal revenues remain above their historical average, at 18.5 percent of GDP for the next three decades, federal spending balloons from its average of 21.0 percent of GDP to 30.2%. It is becoming increasingly clear that Washington does not have a revenue problem, it has a spending problem. As interest payments on the debt climb, the ability for the federal government to address its other responsibilities will be severely limited. While America is facing a crisis at the border, at the gas pump, at the grocery checkout counter, and the broader economy, skyrocketing interest payments on the debt could trigger a sovereign debt crisis as the federal government struggles to meet its obligations. Despite this grim outlook, President Biden and Washington Democrats continue to gamble with the financial and economic future of this country and American workers’ retirement by piling on more deficit spending.”
Interest Rate Hikes to Combat Biden’s Inflation Crisis
- At its July meeting, the Federal Reserve raised interest rates by 75 basis points
- The Federal Reserve has raised rates by 2.25 basis points since March – the fastest rate hike in 40 years
- Eight of the last nine times the Federal Reserve raised rates to respond to inflation concerns, a recession soon followed
- The rate on a 30-year fixed mortgage has doubled since Joe Biden became President
- In a recent op-ed in The Hill, HBC Republican Leader Smith discusses how rising interest rates to combat Biden’s inflation crisis will impact all Americans.
- Smith released a report analyzing the impact of rising interest rates on the size of the debt and interest payments on the debt under various scenarios
- Last week, Smith sent a letter to CBO requesting an analysis of the impact of changes in inflation and interest projections on the nation’s debt – including how a rising debt-to-GDP ratio affects the interest rate the federal government must pay to service that debt.
CBO’s Long-Term Budget Outlook Highlights
- The Congressional Budget Office’s latest long-term budget outlook shows the public debt rising from 100 percent of GDP in 2021 to 185 percent of GDP in 2052, the highest level in American history
- Debt has averaged 46 percent of GDP over the past fifty years
- CBO projects the public debt to grow from $24 trillion today to $138 trillion in 2052 – equivalent to more than $370,000 per person or $1.5 million per family of four
- Interest spending on the national debt is projected to grow from 1.6 percent of GDP in 2022 to 7.2 percent by 2052
- Interest spending will exceed all discretionary spending by 2047 and exceed spending on Medicare by 2046 and Social Security by 2049
- CBO projects mandatory spending to gradually increase from 16.5 percent of GDP in 2022 to 24.2 percent of GDP in 2052
- The growing debt burden is attributable to the growth of mandatory spending – while discretionary spending is projected to decline and revenues to grow
- Revenues are projected to increase to 18.5 percent of GDP by 2052, well above the fifty-year historic average of 17.3 percent