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Lame Duck Congress is eyeing hundreds of billions of dollars of new borrowing this year that will put new inflationary pressures on the US once prices start to decline in October, the federal budget hawk warned this week.

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Maia McGuineas, president of the Committee on a Responsible Federal Budget, told FOX Business that Congress will come under pressure in the next few weeks to increase the public debt in the form of an extension of tax breaks and possibly some new spending items. Unless Congress agrees to offset the costs, these programs will require even higher levels of federal borrowing.

“Most participants admitted that our debt is too high, and everyone admits that borrowing is more conducive to inflation,” she told FOX Business. But she said that when they were presented with the idea of ​​not taking on new loans, “they start thinking about everything they might need in a deal at the end of the year.”

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New loans will be required if Congress agrees to extend certain tax breaks after they expire. For example, companies are currently allowed to deduct the full cost of business equipment costs immediately, but this 100% depreciation bonus rule will begin to be phased out in 2023. Other tax credits have already expired but can be renewed, such as the ability to deduct research expenses immediately instead of spreading that deduction over several years.


Extending these breaks will result in a revenue shortfall that will have to be made up by new borrowing, and the same applies to decisions to expand federal spending programs. One such program could be new military aid to Ukraine, or a massive increase in government-wide spending allowances when a full-year appropriation bill comes up.

McGuineas said these kinds of priorities could lead to hundreds of billions of dollars in new spending, which would only boost demand and keep inflationary pressures high.

Her organization is pushing members of Congress to agree not to take on new loans until the end of the year, and then seriously oppose any further increase in the $31 trillion public debt. But the temptation to approve these programs among Republicans and Democrats is so great that they can be accepted regardless of the inflationary damage they might cause.

McGuineas said that, in theory, it has never been easier to show people the dangers of rampant federal funding. For years, increased spending had no immediate cost to the average American because the government could borrow at rates close to zero.


inflation statistics President Biden

However, now rising interest rates mean that the government is going to spend record amounts just to service the public debt. The US spent more than $500 billion in interest payments on its debt in fiscal year 2022, more than most federal departments and rivaling the Department of Defense for more than $700 billion.

More borrowing to service debt causes inflation and finally gives American families a direct reason to support less federal spending.

“For years, people could brush off worrying about debt because you couldn’t see the immediate downside of it,” she said. “Now we see that debt can do tangible harm through inflation.”

When the debt expires, the government fills the hole by borrowing more money, and new loans will be made at much higher interest rates. The MacGuineas group has calculated that for every 1% increase in interest rates above the expected level, the government will spend $240 billion more annually to service the trillions it owes.

About a third of America’s short-term debt is expected to be refinanced next year, which means much higher interest payments, and that means even more borrowing.

McGuineas described it as a “vicious cycle” in which Congress spends money, inflation rises, and the Federal Reserve is forced to raise rates to contain inflation. These higher rates raise the cost of government debt and require even more borrowing to service higher interest payments.


President Biden

All this, according to her, is inflationary.

“The more we borrow, the more we invest in the economy, [and] It fuels inflation and exacerbates the problem,” she said on Morning with Maria this week. families.”

McGuineas said getting the situation under control will require a commitment to fighting for a balanced budget and reprioritizing spending by cutting spending in other areas. But she acknowledged it was a big turnaround for Congress.


This year, for example, the Democratic-led House and Senate budget committees failed to approve the budget for fiscal year 2023, which began on October 1.

“It’s like budget committees didn’t exist,” she told FOX Business. “We need to bring back the seriousness of the goal.”