Inflation risks linger as Congress eyes billions in year-end spending: budget hawk

Inflation risks linger as Congress eyes billions in year-end spending: budget hawk

The lame Congress is considering hundreds of billions of dollars in new borrowing this year that would create new inflationary pressures in the United States just as prices began to fall in October, a federal budget hawk warned this week.

Maya MacGuineas, chair of the Committee for a Responsible Federal Budget, told FOX Business that Congress will come under pressure in the coming weeks to further increase the national debt, in the form of extended tax relief and possibly new government jobs. expenses. Unless Congress agrees to offset the spending, these programs will require even higher levels of federal borrowing.

“Most members have recognized that our debt is too high, and everyone would recognize that borrowing more contributes to inflation,” she told FOX Business. But she said when presented with the idea of ​​not borrowing new ones, “they start thinking about everything they could want in a year-end deal.”

New borrowing would be needed if Congress agreed to extend some tax cuts beyond their expiration date. For example, companies are currently allowed to deduct the full cost of business equipment expenses immediately, but this 100% depreciation rule will start to phase out in 2023. Other tax breaks have already expired but could be renewed, such as the possibility of deducting research costs instead of spreading this deduction over several years.

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Congressional leaders are eyeing billions in potential new spending that could fuel inflationary pressures. Photographer: Stefani Reynolds/Bloomberg via Getty Images Nancy Pelosi via AP images (Stefani Reynolds/Bloomberg via Getty Images | AP Newsroom)

Extending those pauses would create a revenue shortfall that would need to be offset by new borrowing, as would decisions to expand federal spending programs. One of those programs could be new military aid to Ukraine, or a large increase in government-wide spending authorities when a full-year supply bill is introduced.

MacGuineas said those kinds of priorities could amount to hundreds of billions in new spending that would only drive more demand and keep inflationary pressures high.

His organization is pushing members of Congress to take no new borrowing for the rest of the year and then take a more serious stance toward the $31 trillion expanding national debt. But the temptation among Republicans and Democrats to endorse these programs is so great that they might pass regardless of the inflationary damage they might cause.

MacGuineas said that in theory, it has never been easier to show people the dangers of rampant federal spending. For years, increased spending had no immediate cost to the average American because the government could borrow at near-zero rates.

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President Biden inflation statistic

Inflation has increased by 8.3% since August 2017. (US Bureau of Labor Statistics / Fox News)

Now, however, rising interest rates mean the government is poised to spend record sums just to service the national debt. The United States spent more than $500 billion in debt interest payments in fiscal year 2022, an amount that is more expensive than most federal departments and rivals the department’s $700 billion. of the defense.

This increased cost is inflationary and finally gives American families a direct reason to support less federal spending.

“For years people were able to brush off worries about debt because you couldn’t see the immediate downside of it,” she said. “Now we see that debt can cause tangible damage due to inflation.”

When the debt comes due, the government fills the gap by borrowing more money, and new borrowings come with much higher interest rates. MacGuineas’ group estimates that for every 1% rise in interest rates above expected levels, the government will spend $240 billion more to repay the trillions it owes.

About a third of America’s short-term debt is expected to be refinanced in the coming year, which means much higher interest payments, and that means even more borrowing.

MacGuineas described it as a “vicious cycle” in which Congress spends, inflation rises, and the Federal Reserve is forced to raise rates in order to temper inflation. These higher rates increase the cost of the national debt and require even more borrowing to service the higher interest payments.

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President Biden

Under President Biden, the United States spent more than $500 billion on debt interest payments in fiscal year 2022.

All of this, she says, is inflationary.

“The more we borrow, the more we pump into the economy, which fuels inflation and makes the problem worse,” she said this week in Mornings with Maria. “Every dollar of savings we can have by reducing deficits from what they would otherwise be contributes to inflation, and this continued borrowing is really putting American families at risk.”

MacGuineas said getting the situation under control will require a commitment to fighting for a balanced budget and only tackling new spending priorities by cutting spending in other areas. But she acknowledged that it’s a steep curve for Congress.

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This year, for example, the Democratic-led House and Senate budget committees did not approve a budget for fiscal year 2023, which began Oct. 1.

“It’s like budget committees don’t exist,” she told FOX Business. “We have to bring back a serious goal.”

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