Debt ceiling talks could hinge on budget cuts. Here’s where the U.S. spends its money.
A key element of the debt ceiling negotiations in Washington, DC. Republican lawmakers demand That the nation cut federal spending, including spending that ballooned during the pandemic.
The push for cuts comes as the U.S. has spent more in taxes and other revenues every year since 2001, when President Bill Clinton left the White House. During the pandemic, spending and the deficit have grown, thanks to President Donald Trump’s 2017 tax cuts as well as spending on emergency measures such as stimulus checks and unemployment aid.
Government spending peaked at $7.2 trillion annually in fiscal year 2021, the year Trump leaves the White House, or about 78 percent more than the nation spent just four years earlier, according to the report. Data from the University of California, Santa Barbara. Since then, federal spending has declined, but the nation is still spending trillions more annually than before the pandemic.
“Look, it all comes down to costs,” McCarthy told reporters Wednesday. “We need to spend less this year than last year. It’s simple.”
While Republicans want the government to spend less, they have vowed not to touch the two biggest spending: Social Security and Medicare. These programs provide retirement income and health care services to millions of Americans over age 65 and represent more than 30% of US spending.
Also off the table is a cut in defense spending, which accounts for about 12 percent of the country’s spending. Instead, spending cuts by GOP leaders have focused on Medicaid — the health care program for low-income Americans — as well as food stamps and welfare.
The GOP plan will include Work requirements Go for the first time in Medicaid and expand them to the Supplemental Nutrition Assistance Program, the formal name for the food stamp program, and Temporary Assistance for Needy Families (TANF) or welfare.
Over the next decade, these cuts will save about $120 billion, according to the Congressional Budget Office. The reduced spending will force thousands of people out of the programs. Combined, Medicaid, SNAP and TANF represent about 13% of US spending.
Some financial experts say that in the short term, the aid cuts could potentially lead to a recession this year. That’s because cuts would be made to programs where federal money is redirected back into the economy through food purchases and health care services. Without this spending, local businesses may suffer.
“The austerity associated with the compromises suggested above will contribute to the moderate recession we expect this year,” Wells Fargo Investment Institute analysts said in a research note.
But, he added, the country’s fiscal health is also at risk if the U.S. is unable to reduce its spending. Analysts noted that if the U.S. needed to issue more debt to finance its spending, that would result in higher interest costs for the nation — possibly requiring Congress to cut spending or compensate. It will encourage tax increase.