Inflation risks remain as Congress eye billions in year-end spending: budget hawk

The lame duck Congress is eyeing hundreds of billions of dollars in new credit in the year that would emerge new inflationary pressures in the US, just as prices began to ease in October, a federal budget hawk warned this week.

Maya MacGuineas, president of the Federal Budget Committee, told FOX Business that Congress will come under pressure over the next few weeks to push the federal debt even higher in the form of tax breaks and possibly some new spending. Unless Congress approves spending balances, these programs will require even more federal debt.

“Most members have recognized that our debt levels are too high, and anyone would recognize that borrowing more contributes to inflation,” she told FOX Business. But she said when they were confronted with the idea of ​​not taking on new loans, “they start thinking about all the things that they could have in a year-end deal.”

New borrowing would be required if Congress agrees to extend some tax cuts beyond their expiration dates. For example, companies are currently allowed to deduct the full cost of office equipment expenses immediately, but this 100% bonus depreciation rule will expire in 2023. Other tax breaks have already expired but could be extended, such as B. the ability to deduct research costs immediately instead of stretching this deduction over several years.

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Congressional leaders are eyeing potential billions of dollars in 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 these pauses would create revenue shortfalls that would need to be offset by new borrowing, and so would decisions to expand federal spending programs. One such program could be new military aid to Ukraine or a broad increase in spending approvals for the entire government when a full-year budget is presented.

MacGuineas said these types of priorities could add up to hundreds of billions in new spending, which would only generate and sustain more demand inflationary pressures increased.

Your organization urges members of Congress not to agree to new borrowing for the rest of the year, and then takes a serious stand against a further $31 trillion increase in the national debt. But the temptation among Republicans and Democrats to endorse these programs is such that they could be adopted regardless of the inflationary damage they could do.

MacGuineas said that in theory, showing people the dangers of uncontrolled federal spending has never been easier. For years, more spending was not an immediate cost to the average American because the government was able to borrow at near-zero interest rates.

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

Now, however, rising interest rates mean the government will spend record amounts just to service the national debt. The US spent more than $500 billion on debt interest payments in fiscal 2022, an amount more expensive than most federal departments and rivaling the Department of Defense’s over $700 billion.

Borrowing more to service the debt is inflationary and finally gives American families a direct reason to support less government spending.

“For years, people could dismiss concerns about the debt because you couldn’t see the immediate downside,” she said. “Now we see that debt can do tangible damage due to inflation.”

As the debt matures, the government fills the hole by borrowing more money, and new borrowing will come at much higher interest rates. The MacGuineas group estimates that for every 1% rise in interest rates above expected levels, the government will spend $240 billion more each year to service 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 even more borrowing.

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

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President Biden

Under President Biden, the US spent more than $500 billion on interest payments in fiscal 2022.

All of this, she says, is inflationary.

“The more credit we have, the more we put that into the economy, [and] that’s fueling inflation and making the problem worse,” she said with Maria this week morning. “Every dollar of savings we can have by reducing deficits to what they would otherwise be helps with inflation, and this continued borrowing is really putting America’s families at risk.”

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

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This year, for example, the Democrat-led House and Senate budget committees failed to approve a budget for fiscal year 2023, which began Oct. 1.

“It’s like the budget committees don’t exist,” she told FOX Business. “We have to bring back the seriousness of our goals.”

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