The U.S. federal government recorded a massive budget deficit of $1.8 trillion for fiscal year 2024, according to the Congressional Budget Office (CBO). This growing fiscal imbalance, driven by increased spending and stagnant revenue growth, is set to become a central issue for the next president, with intense debates over taxation and government expenditures expected to dominate the political landscape.
Trump and Harris Face Questions Over Fiscal Policies
Despite the mounting deficit, neither former President Donald Trump nor Vice President Kamala Harris have provided detailed plans on how they would finance the costly policies they have proposed. According to the Committee for a Responsible Federal Budget, Trump’s platform could add an estimated $7.5 trillion to the national debt over the next decade, while Harris’s proposals could increase it by $3.5 trillion. These projections raise concerns about how either administration would address the nation’s growing debt without resorting to significant tax hikes or deep spending cuts.
Debt Ceiling Looms as Major Challenge
The escalating fiscal crisis is likely to complicate political negotiations, particularly with the January 2 deadline to address the debt ceiling approaching. Last month, Congress narrowly avoided a government shutdown by passing a stopgap measure that funds federal operations until December 20. However, lawmakers have yet to agree on a long-term solution to the looming fiscal challenges, adding pressure to an already tense political environment.
The Impact of Biden’s Blocked Student Debt Plan
Although the $1.8 trillion deficit is alarming, it could have been even larger. The deficit for fiscal year 2023 was $1.7 trillion, but it would have reached $2 trillion if not for the Supreme Court’s decision to strike down President Joe Biden’s federal student debt cancellation plan before it took effect. Without this ruling, the federal financial shortfall would have been significantly worse, highlighting the challenges in balancing government spending.
Federal Spending Soars in 2024
Federal spending rose to $6.8 trillion in 2024, a 10% increase from the previous year. A significant portion of this rise is attributed to a 34% jump in interest payments on the national debt, totaling $950 billion, largely driven by rising interest rates. Additionally, entitlement programs such as Social Security and Medicare contributed heavily to the spending surge. Social Security expenditures surpassed $1.4 trillion, while Medicare costs neared $870 billion, driven by an aging population and increasing service payments.
Revenue Growth Fails to Offset Spending
On the revenue side, tax collections increased by 11%, totaling $4.9 trillion. This was largely driven by a $249 billion (11%) increase in individual income taxes and a $109 billion (26%) jump in corporate income taxes. Part of this revenue boost resulted from the Internal Revenue Service extending tax payment deadlines for areas affected by natural disasters into fiscal year 2024.
The Path Forward: Taxes or Spending Cuts?
With the federal deficit continuing to balloon, questions arise about how the next president and Congress will tackle these fiscal challenges. Will higher taxes become a necessity, or will spending cuts be prioritized? As the debt ceiling debate looms and no clear solutions are on the horizon, the U.S. faces a critical moment in shaping its fiscal future.
