by Xinhua writers Xiong Maoling, Gao Pan
WASHINGTON, Feb. 3 (Xinhua) -- The U.S. national debt has surpassed 30 trillion U.S. dollars for the first time amid elevated inflation and looming rate hikes, hitting a fiscal milestone and raising concerns about fiscal sustainability.
The total public debt outstanding exceeded 30 trillion dollars on Monday, which included 23.5 trillion dollars in debt held by the public and 6.5 trillion dollars in intergovernmental holdings, according to the U.S. Treasury Department's daily treasury statement.
The sharp increase of national debt, in part fueled by former President Donald Trump's large tax cuts and massive government spending in response to the COVID-19 pandemic, worsened the country's already difficult fiscal situation, analysts said, warning of challenges with the prospect of higher interest rates.
REPEATED "FISCAL IRRESPONSIBILITY"
The milestone of 30 trillion dollars in debt should be "a giant red flag for all of us about America's future economic health, generational equity, and role in the world," Michael A. Peterson, CEO of the Peter G. Peterson Foundation, said in a statement Tuesday.
"How we got here is a long story of repeated chapters of fiscal irresponsibility on both sides of the aisle," Peterson said. "Leaders in Washington have made imprudent decisions over decades, time and again choosing a favorite new tax cut or spending program above our collective future."
The latest data on national debt came after U.S. Congress passed legislation in December to raise the federal government's debt limit by 2.5 trillion dollars to about 31.4 trillion dollars, averting a looming debt default.
Republicans previously refused to support Democrats' efforts to raise the debt ceiling, arguing that Democrats control both chambers of Congress and the White House and should deal with the crisis on their own. Democrats, however, noted that raising the debt limit only allows the Treasury Department to borrow additional funds to cover expenditures that have already been approved by Congress, including COVID-19 relief bills and the tax cuts rolled out during the Trump administration.
Republicans, who brand themselves as fiscal hawks, voted along party lines in late 2017 to pass a 1.5-trillion-dollar tax cut, which Democrats called a boon for the wealthy.
Since March 2020, Congress has approved several rounds of economic relief in response to the pandemic, with expanded unemployment benefits, stimulus checks, and financial support for companies, totaling more than 5 trillion dollars.
"Some of this borrowing was needed to address the COVID-19 pandemic, but that doesn't make our massive debt levels any less concerning," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a budget watchdog group.
MacGuineas noted that the U.S. government borrowed 2.6 trillion dollars, an equivalent of about 7 billion dollars per day, during the last calendar year. "Borrowing for the pandemic made sense but adding further to the deficit now would weaken the economy, not strengthen it," she said.
BRACING FOR RATE HIKES
The national debt is rapidly climbing as U.S. Federal Reserve shifts toward a more hawkish stance in an attempt to contain a historic surge in inflation, which would push up debt service costs and intensify the problem.
The central bank has kept its federal funds rate unchanged at the record-low level of near zero since the onset of the pandemic, but U.S. inflation has become higher and more persistent in recent months, prompting it to consider a faster tightening of monetary policy.
The Fed signaled last week that it is ready to raise interest rates as soon as March to combat surging inflation. Fed officials' median interest rate projections released last December forecast three rate hikes this year.
Traders, however, have priced in a total of five quarter-point rate hikes this year, bringing the federal funds rate to a range of 1 percent to 1.25 percent by the end of the year.
Peterson warned that on the current trajectory, the interest on the national debt will rise to eat up nearly 50 cents of every tax dollar collected in 2050.
The impact is expected to be broad. A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the U.S. dollar, making it more costly to finance public and private activity in international markets, the Congressional Budget Office has warned.
"It's not only unsustainable, it's a moral failure that will harm our children and grandchildren," Peterson said, urging policymakers to put the nation on a strong and sustainable fiscal path.
SOCIAL SPENDING BILL IN LIMBO
Democrats have encountered a major setback as Joe Manchin, a moderate Democratic senator from West Virginia, announced in December that he would not vote for President Joe Biden's social spending and climate bill. Now, the debt concerns would only strengthen Manchin's arguments.
Manchin, whose vote is key to passing the roughly 2-trillion-dollar spending package with a 50-50 split Senate, already cited mounting debt as a reason he wasn't able to support his party on the important legislation.
"I cannot take that risk with a staggering debt of more than 29 trillion dollars and inflation taxes that are real and harmful to every hard-working American at the gasoline pumps, grocery stores and utility bills with no end in sight," Manchin said in an earlier statement. On Tuesday, the West Virginia senator even said the bill is "dead."
The bill, known as the Build Back Better (BBB) Act, seeks to impose new taxes on the largest corporations and the wealthiest Americans to generate 2 trillion dollars for childcare, education, health care and climate policy, among others.
Republicans have repeatedly lashed out at the massive spending plan, the price tag of which was initially set at 3.5 trillion dollars, warning that the tax hike would hurt U.S. businesses and families, and the high price tag would exacerbate inflation and push up the already ballooning debt.
"Whether for further pandemic relief, Build Back Better, or discretionary spending bills, policymakers need to pay for new initiatives," said MacGuineas. "And sooner rather than later, they need to come together to get our fiscal house in order."
"It's time to put away the credit cards," she added.
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