This article was originally published by Daniel Lacalle at The Mises Institute.
The long-term forecast for higher interest rates, according to Treasury Secretary Janet Yellen, makes it more difficult to control US borrowing needs, which emphasizes the significance of raising revenue in the forthcoming budget talks with Republican lawmakers. There is only one problem. She is wrong.
According to the Congressional Budget Office (CBO) baseline, which does not assume a single year of recession and already counts with record tax revenues, the 2025 primary deficit will reach $851 billion, while net interest outlays will rise to $951 billion. Furthermore, the minimum expected primary deficit from 2025 to 2034 will be a staggering $676 billion with $1.2 trillion of net interest outlays, while the average annual deficit will likely be above $700 billion. The accumulated figures are even more concerning. The CBO estimates that the aggregate primary deficit in the 2025–2034 period will reach a brutal $7.4 trillion, with accumulated interest expenses of $12.4 trillion. We must remember that the CBO baseline estimates no recession and constantly rising tax receipts above the record 2024 level.
If the CBO’s optimistic estimates lead to the conclusion that deficits and interest expenses are going to soar in a booming economy, it is evident that no revenue measure is going to end this disastrous trend.
Those who say that revenue measures will cut the deficit have a problem with mathematics and reality. There is no revenue measure that will generate $700 billion in additional receipts every year. Furthermore, there is no revenue measure that will generate those additional annual revenues, regardless of the economic cycle. A single year of recession could destabilize the administration’s optimistic estimates.
The United States’ unsustainable budget deficit is a problem, and interest expenses are rising because the government rejects any form of budget
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