President Joe Biden’s executive actions taken to cancel student loan debt are a primary cause of a $400 billion increase in the federal government’s projected deficit for 2024.
On Tuesday, the Congressional Budget Office released a revised estimate up from February, calculating the deficit will total $1.9 trillion.
In its report, the CBO said the cost of Biden’s student loan cancellation is expected to be $145 billion more than the agency estimated in February.
But the CBO noted their projection could be $66 billion too low depending on whether a Biden administration rule change on student loans can be finalized by the end of the fiscal year, which is Sept. 30.
In which case the total increase in cost could be as high as $211 billion for the year, according to calculations by The Wall Street Journal.
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In August 2023, the U.S. Supreme Court ruled against Biden’s original student loan forgiveness plan, finding the president exceeded his executive authority.
The total cost of the plan, which relied on language found in the HEROES Act of 2003, was estimated to be $430 billion.
In its 6-3 decision the Court said, “It is ‘highly unlikely that Congress’ authorized such a sweeping loan cancellation program ‘through such a subtle device as permission to ‘modify,’” quoting from case precedent.
The justices stated that such “major questions” must be decided through congressional action.
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Since that ruling, Biden announced several smaller steps, relying on different legal authority, but these moves are also being challenged in court.
Besides the administration’s student debt cancellation programs, other drivers of the $400 billion increase in this year’s deficit include the $95 billion defense appropriations for the wars in Ukraine and Israel, as well as shoring up allied military preparedness in the Indo-Pacific region Congress passed in February.
Additionally, the federal government incurred $70 billion in costs due to bank failures.
Further, Medicaid costs came in $50 billion higher than expected, and the federal government passed $60 billion more in new discretionary spending programs.
A primary component of the federal budget deficit overall is increased interest payment costs in servicing the national debt, which is expected to exceed $1 trillion by fiscal year 2026.
A graphic from the Federal Reserve shows the U.S. interest payments this year will exceed the total cost of funding the Defense Department, which has been the largest single ticket item besides the entitlement programs of Social Security and Medicare.
US federal interest payments now exceed the defense budget. pic.twitter.com/joZadHMP0U
— (((The Daily Shot))) (@SoberLook) June 18, 2024
The nonpartisan Committee for a Responsible Federal Budget further broke down the interest payment number for the fiscal year, which ends on Sept. 30.
“At a projected $870 billion, interest will surpass total spending on national defense ($822 billion) in 2024 and grow well beyond the defense budget over time,” the CRFB said.
By way of comparison, it noted net interest payments on the debt were $223 billion in fiscal year 2015 and $352 billion in fiscal year 2021, which included Biden’s first nine months in office.
Some major new spending that passed under Biden included the $1.9 trillion American Rescue Plan, which had no Republican support in Congress; the $1 trillion infrastructure bill, which garnered some GOP support in the Senate and a handful of members in the House; and the Inflation Reduction Act, which had no GOP backing.
In April 2023, researchers at the University of Pennsylvania’s Wharton School of Business, working with the investment firm Goldman Sachs, updated their estimated cost of the IRA’s green initiatives from $385 billion over a 10-year period to more than $1 trillion.
The Wall Street Journal’s editorial board, in a Wednesday opinion piece titled “Soaring U.S. Debt Is a Spending Problem,” noted that federal revenue as a percentage of Gross Domestic Product (the total size of the economy) has been stable.
“Revenue is expected to total 17.2% of GDP this year—roughly the 50-year average before the pandemic,” but, they added that spending is expected to hit 24.2 percent of GDP this year.
It has only exceeded 24 percent once since World War II, in 2009, during Barack Obama’s first year in office where he addressed the financial crisis via a “stimulus binge.”
Total federal expenditures in FY 2023 were $6.1 trillion, not far behind the $6.6 trillion spent in 2020 during the height of the pandemic.
This compares compares a pre-pandemic $4.4 trillion with a $984 billion deficit in fiscal 2019 under then-President Donald Trump.
“If spending as a share of GDP remained at the pre-pandemic average, the deficit would be roughly $890 billion this year,” the editorial board noted.
They recommended if Trump wins in November and wants to keep his current tax policies in place, “the best way to finance that is by repealing the Biden spending blowouts in the Inflation Reduction Act, student-loan write-offs and pandemic-era welfare expansions.
“Failing to take on that challenge means either a monumental tax increase or a debt panic down the road.”
