(WASHINGTON) — In a new projection from the nonpartisan Congressional Budget Office, the federal budget deficit – the gap between government revenue vs. spending – will be $1.9 trillion for the 2024 fiscal year.
The deficit forecast is $400 billion higher than the CBO’s last estimate in February, an increase of 27%. The CBO cites a handful of reasons, including recent legislation to provide $95 billion of aid to Ukraine, Israel and the Indo-Pacific region, which Congress passed in April after months of delay, increasing Medicaid spending and $70 billion attributed to the 2023 bank failures because of a slower-than-expected recovery of payments by the Federal Deposit Insurance Corporation.
But one of the chief reasons for the projection increase was President Joe Biden’s student loan policies, including cancelling loans, adjusting loan balances and implementing a new repayment plan that offers more subsidies to borrowers. The policies have added $145 billion to the deficit, the CBO said.
Biden has so far cancelled $167 billion in loans for 4.75 million borrowers, with a plan on the way to increase that reach to nearly 30 million borrowers in total. The debt relief has mostly focused on people who were already enrolled in repayment plans that pledged eventual debt forgiveness, like income-driven repayment plans that offer relief after 20-25 years of payment, or the public service loan forgiveness program which offers relief after 10 years. Both programs were poorly coordinated and often left people unable to access their debt relief at the end of their payment plans. About $119 billion of the total debt relief has so far targeted those two programs. The administration has made the case that the debt relief could boost short-term consumer spending and have positive effects on borrowers’ homeownership and entrepreneurship capabilities, but critics have raised concerns about the cost to the federal government.
Other factors have also increased the deficit over the last few months, including higher interest rates – which make it more expensive for the government to pay its debt.
And there’s a looming 2024 election issue at play, too: The continuing impact of the 2017 Trump tax cut legislation, which has added trillions to the deficit. If former president Trump wins office, he says he will extend the legislation, which the CBO predicted could end up costing about $5 trillion over 10 years.
The White House sought to home in on that tax legislation to explain the deficit increase, particularly as the 2025 expiration date for the legislation nears.
“After the prior administration added $8 trillion to the debt, new CBO numbers show that the Trump tax windfalls for billionaires and corporations continue to come at the expense of the American people by driving up deficits,” Andrew Bates, White House spokesperson, said in a statement.
“Republican officials are already plotting to grow the deficit even more in 2025 with tax handouts to the corporations who are keeping prices high even as inflation falls,” Bates said.
Total U.S. national debt is on track to top $56 trillion by 2034, the CBO said.
For deficit hawks, the latest increase is yet another warning that the nation’s debt requires congressional reform.
“With debt growing out of control, we need leadership now more than ever. This should be domestic issue number one in the presidential campaign. It’s time for Presidents Biden and Trump to put forward plans to fix our debt. And it’s long past time for Congress to act,” Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said in a statement.
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