Washington: As the federal debt crosses $36 trillion, the next administration, lined up under US President-elect Donald Trump, is set to face bigger challenges on the economic front.
Around $2 trillion was added this year only to the federal debt. On average, every citizen now has a debt of over $100,000.
US Federal Debt Crisis Deepens
The US national debt has experienced rapid growth over the past few decades, rising from $5.7 trillion at the turn of the century to $23.2 trillion by 2020. Following the COVID-19 pandemic, the debt surged by nearly $16 trillion, marking an extraordinary increase. In just the past 316 days, the debt has grown by $6.3 billion per day, equivalent to approximately Rs 5.32 billion. As a result, each American citizen now carries an average debt burden of about $108,000.
What Does This Mean For Trump Administration?
Donald Trump has big plans for the economy, but a big debt problem will be a hurdle to delivering on them.
Trump has bold ideas on tax cuts, tariffs, and other programs, but high interest rates and the price of repaying the federal government’s existing debt could limit what he’s able to do.
Not only is the federal debt at roughly $36 trillion, but the spike in inflation after the coronavirus pandemic has pushed up the government’s borrowing costs such that debt service next year will easily exceed spending on national security.
Will Trump Go For Tax Cuts?
The higher cost of servicing the debt gives Trump less room to maneuver with the federal budget as he seeks income tax cuts. It’s also a political challenge because higher interest rates have made it costlier for many Americans to buy a home or new automobile. And the issue of high costs helped Trump reclaim the presidency in November’s election.
It’s an issue on Trump’s radar. In his statement on choosing billionaire investor Scott Bessent to be his treasury secretary, the Republican president-elect said Bessent would “help curb the unsustainable path of Federal Debt.”
The debt service costs along with the higher total debt complicate Trump’s efforts to renew his 2017 tax cuts, much of which are set to expire after next year. The higher debt from those tax cuts could push interest rates higher, making debt service even costlier and minimizing any benefits the tax cuts could produce for growth.
When Trump was last in the White House in 2020, the federal government was spending $345 billion annually to service the national debt. It was possible to run up the national debt with tax cuts and pandemic aid because the average interest rate was low, such that repayment costs were manageable even as debt levels climbed. Congressional Budget Office projections indicate that debt service costs next year could exceed $1 trillion.
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