In 2001, the US government had recorded a budget surplus for four straight years. The Congressional Budget Office (CBO) had even projected that the national debt could effectively fall to zero by 2009. The US once appeared to be on track to eliminate its debt.
The US has moved from surpluses to large and regular deficits. The Committee for a Responsible Federal Budget (CRFB) said the US had a 1.2% budget surplus in 2001, but now runs deficits of around 6% of the economy.
Marc Goldwein, senior vice president at CRFB, warned that the country is entering a “debt spiral”, according to Yahoo Finance.
The government is also spending a huge amount just to pay interest on its debt. That is more than the government spends on defense. The tax cuts reduced government revenue. When the government collects less money from taxes while continuing to spend heavily, it has to borrow more to cover the gap. Other events also hurt the government’s finances at the same time. Economic crises created another major source of debt. The CRFB calls this category “recession responses. If the government continues to spend more than it collects in revenue, it will need to keep borrowing to cover the difference.
The CBO projects that the US government will run a $2.1 trillion budget deficit in the fiscal year ending September 30, Yahoo Finance reported. Interest payments now account for about 15% of total federal government spending, according to the US Treasury’s Fiscal Data. It includes emergency government spending used to deal with economic downturns and the COVID-19 pandemic. These emergency responses account for about 28% of today’s debt, according to the CRFB’s analysis, according to Yahoo Finance. The Bipartisan Policy Center estimates that the One Big Beautiful Bill Act could increase the national debt by more than $4 trillion. This means the $40 trillion milestone may not mark the end of the problem.
The CRFB said the tax cuts immediately reduced revenues and were later extended, often with support from Democrats as well, according to Yahoo Finance. The wars in Afghanistan and Iraq, along with the bursting of the dot-com bubble, added pressure to government finances, according to the CRFB analysis. Today’s deficit is still extremely large.
What happens next?
The big change from 2001 is clear. The US went from having a budget surplus and a CBO projection that debt could effectively reach zero by 2009 to carrying more than $40 trillion in debt today. The main reason is not one single event or one president. The CRFB’s analysis points to three major forces: tax cuts, higher government spending and emergency spending during economic crises.
