For a fifth year in a row and just eight months into fiscal 2024, the federal deficit has blown past the $1 trillion mark. The nonpartisan Congressional Budget Office concedes that not only will this year’s deficit outpace last year’s, but it will also supersede the CBO’s own previous projection. As usual, the crisis isn’t caused by insufficient tax revenue, which actually rose by 10% from the same period in fiscal 2023. Rather, Uncle Sam continues to dole out too much in mandatory spending, which in turn triggers inflation, which in turn triggers cost-of-living adjustments in that mandatory spending, which in turn jacks up interest rates on the national debt.
Social Security spending reached nearly $1 trillion in the first two-thirds of this year, an increase of 8% to accommodate cost-of-living adjustments. In turn, net interest payments on the national debt skyrocketed by 42% to $622 billion. That’s more than the federal government spent on either Medicare or the Defense Department. In fact, interest payments have now become the single most expensive category of government spending after Social Security. As recently as last year, the CBO didn’t anticipate this happening until the next decade.
The government received $3.3 trillion in tax revenue. Nearly one-fifth of that revenue will go just to paying down interest on the national debt. And the problem is only likely to get worse.
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At the start of the year, the Federal Reserve projected it would slash the federal funds rate three times throughout 2024, while investors anticipated more than twice as many cuts. Now, Treasury futures have priced in majority odds of no rate cut before Election Day. Weak Treasury auctions have continued to push bond yields higher, a prospect made even more perilous by the fact that a record $9 trillion — or a third of our outstanding debt — is set to mature in this high interest rate environment. Should the Fed fail to cut the federal funds rate at all before the year is over, Bank of America projects net interest payments on the national debt will reach $1.6 trillion, more than any other federal spending category, including Social Security.
Oh, and as a fun little reminder, the bipartisan consensus for Social Security of “do nothing” and “protect Social Security with complete inaction” is tantamount to a 21% benefit cut across the board in nine years. Whatever happens next, don’t say the Washington Examiner never warned you.