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Gross Debt: America’s Growing Debt Crisis and Its Impact on Business

On a fateful Monday, America’s gross national debt surpassed a staggering $33 trillion for the first time. This significant milestone serves as a stark reminder of the nation’s shaky fiscal trajectory, and it couldn’t have come at a more critical time. The looming threat of a government shutdown in Washington highlights the urgency of addressing the country’s fiscal challenges. This article explores the implications of America’s soaring national debt and its potential consequences for businesses.

A Precarious Fiscal Path

As the Treasury Department unveiled the alarming debt milestone, Congress found itself in a quagmire, struggling to secure funding for the government before the September 30 deadline. Without a resolution, the United States would face its first government shutdown since 2019. The debate over the national debt has grown increasingly vociferous this year, with a recent standoff over raising the nation’s borrowing cap ultimately culminating in a bipartisan agreement to suspend the debt limit for two years. However, the debt is still projected to exceed $50 trillion by the end of the decade, casting a shadow over the nation’s financial stability.

Factors Fueling the Debt Crisis

Several factors contribute to the ongoing debt crisis, making it a daunting challenge to mitigate. First, some federal spending programs passed during the Biden administration are turning out to be more costly than initially projected. For instance, the Inflation Reduction Act of 2022, originally estimated to cost around $400 billion over a decade, is now predicted to exceed $1 trillion due to strong demand for its clean energy tax credits.

Moreover, pandemic-era relief programs continue to strain federal finances. The Employee Retention Credit, initially projected to cost $55 billion, has already cost the government $230 billion, leading to its temporary suspension over fears of fraud and abuse.

On the revenue front, attempts by President Biden to raise more funds through tax changes have faced resistance. The delay in implementing new tax policies, such as requiring reporting of small digital transactions and preventing high earners from contributing extra money to their 401(k) accounts, has hindered revenue collection.

Business Implications

The growing national debt has far-reaching implications for businesses. Higher levels of debt can lead to increased inflation and interest rates, impacting the cost of borrowing and potentially reducing consumer spending. Furthermore, the uncertainty surrounding fiscal policy can hinder long-term planning and investment decisions for companies.

Businesses that rely on government contracts or funding may face disruptions in the event of a government shutdown. The inability to secure funding for essential services can lead to delayed payments and hinder economic stability.

The current division in Congress and resistance to revenue-raising measures have amplified concerns among budget watchdog groups. They fear that a fiscal crisis may be on the horizon, given the rapid growth in inflation and interest rates. The Peter G. Peterson Foundation’s CEO, Michael A. Peterson, warns of the compounding fiscal cycle’s damage to future generations, with over $10 trillion in interest costs projected over the next decade.

While Republicans and Democrats remain divided on how to address the immediate threat of a government shutdown, it is crucial for lawmakers to find common ground. A stopgap bill to keep the government operational past September 30 may be necessary to prevent further economic turmoil.