August 03, 2022

As Democrats Ready More Inflationary Spending, CBO Confirms Biden’s Inflation Crisis Already Added $2.5 Trillion to the Cost of Servicing Nation’s Debt

The Congressional Budget Office (CBO) today confirmed to House Budget Committee Republican Leader Jason Smith (MO-08) that the impact of President Biden’s inflation crisis and the subsequent rise in interest rates are forcing Americans to devote more of their tax dollars to paying interest on the debt. This analysis comes at the same time Washington Democrats are attempting to pass a budget reconciliation bill that would add more fuel to the inflation fire by spending $728 billion and adding $114 billion in new debt.

In its analysis, CBO determined that a $2.5 trillion increase in interest payments on the debt between its February 2021 baseline – issued shortly after President Biden took office – and its May 2022 baseline is attributable to today’s inflation crisis and the Federal Reserve hiking interest rates in response to that crisis. This year alone, rising rates will cost taxpayers an extra $100 billion. As the nation’s debt level continues to rise, CBO outlined that buyers of American debt will demand even higher interest rates – raising further the cost of Washington’s deficit spending addiction.

“Short-sighted, reckless spending by President Biden and Washington Democrats is having an impact on everything from higher interest payments on the debt to the prices Americans are paying everyday just to get by. With $2.5 trillion worth of new interest payments on the debt since he took office, Joe Biden’s inflation crisis has cost every taxpayer an additional $17,000, and set our nation up for an even worse long-term debt crisis,” said House Budget Committee Republican Leader Jason Smith (MO-08). “The Democrats’ first reconciliation bill, the $2 trillion American Rescue Plan, sparked the highest inflation in 40 years, leaving behind a massive trail of waste. In response, the Federal Reserve has had no choice but to raise interest rates – ensuring higher interest payments that eat away at the federal government’s ability to address its other responsibilities. Despite this grim outlook, Washington Democrats are right now scheming to pass another reconciliation bill that spends $728 billion, adds $114 billion to the debt, and will only make President Biden’s inflation crisis that much worse.”

Key Points from CBO Response

  • Interest payments on the debt will rise by $2.5 trillion over the next 10 years because of higher interest and inflation projections.
  • The Federal government will pay an extra $100 billion in interest payments this year alone from rising interest rates.
  • With CBO projecting the debt to increase by 85 percentage points as a percentage of the economy over the next three decades, borrowing costs will increase by more than 2 percentage points adding an extra $3 trillion in interest payments.
  • Half of outstanding federal debt will mature in the next two years – potentially exacerbating the impact on interest payments on such debt given the ongoing risk of higher interest rates.

Interest Rate Hikes to Combat Biden’s Inflation Crisis

  • The Federal Reserve has raised rates by 2.25 percent since March – the fastest rate hike in 40 years.
  • The rate on a 30-year fixed mortgage has doubled since Joe Biden became President.
  • In a recent op-ed in The Hill, HBC Republican Leader Smith discusses how rising interest rates to combat Biden’s inflation crisis will impact all Americans.
  • Earlier this summer, HBC Republican Leader Smith released a reportanalyzing the impact of rising interest rates on the size of the debt and interest payments on the debt under various scenarios.

Read House Budget Committee Republicans’ Fact Sheet on Democrats’ Inflation EXPANSION Act – that spends $728 billion and will add $114 billion to the debt – here.

Read CBO’s response to Republican Leader Smith here.