About the Debt Default Clock
TWO MINUTES TO MIDNIGHT: THE UPDATED FEDERAL GOVERNMENT “DEBT DEFAULT CLOCK”
The Default Clock Committee,
April 13, 2023
Beyond the troubling debt-ceiling standoffs we witness every few years, including this year, looms a far more dire threat. This is a true U.S. government default, which does not follow from avoiding a breach in the debt ceiling, that economists warn could also lead to a collapse of confidence in the American economy, a run on the dollar, and perhaps even a global economic meltdown.
How close are we to such a catastrophic federal default?
To answer this question, a group of private-sector economists and fiscal policy experts has formed a citizens’ committee, called the Debt Default Clock Review Committee, to maintain an objective, fact-based federal government Debt Default Clock. The Clock is designed to help the public to see and track the nearness of the danger. The Review Committee is continuing to use this Clock design. It completed the review prior to the one found here in July of 2022. For the Committee’s purposes, “default” is defined simply as a failure by the U.S. Treasury to make a scheduled interest payment on just one direct U.S. Government obligation such as a Treasury note or bond. “Insolvency” is defined as the point beyond which default becomes a virtual certainty.
Generally speaking, Congress has gotten in the habit of suspending the government’s statutory debt ceiling for periods of a year or two, during which time the Treasury may incur unlimited amounts of debt. It broke this habit in December of 2021 by enacting a dollar-denominated debt ceiling law (Public Law 117-73). Public Law 117-73 set the debt ceiling at just under $31.4 trillion. However, the federal government has already used up the increase in the debt permitted by this law. Thus, the federal government is now evading the ceiling by using what are called extraordinary measures. Clearly, both the Biden Administration and Congress have not been treating the current statutory debt ceiling as a real ceiling to honored. Further, they could resume the dangerous practice of suspending the ceiling. Worse, Congress may decide to repeal outright the debt ceiling law and President Biden could sign such a measure into law. This is something Treasury Secretary Janet Yellen recommended in 2021. Repealing the debt ceiling law does not eliminate the threat of a default. Indeed, to think that it would or could is akin to thinking we can be assured of perpetually sunny days if we simply destroy the barometer! The Biden Administration and Congress seem to be telling themselves: “If I just increase the credit limit on my credit card, I will never have to pay it off!”
This irresponsible view, unfortunately, was reinforced by the Federal Reserve’s actions taken in response to the pandemic in the course of 2020 and 2021. The Federal Reserve had taken the action of reducing interest rates, which also has the effect of reducing the average rate on the Treasury securities used to finance the federal debt. The Federal Reserve also dramatically expanded its holdings of Treasury securities during the same period. These actions were important contributing factors to the currently high rates of inflation, which has forced the Federal Reserve to raise interest rates and reduce its holdings of Treasury securities. These actions are increasing pressures on the Treasury securities market.
Combined, these two steps by the Federal Reserve are serving to accelerate the onset of federal insolvency and ultimately default by dramatically increasing the government’s interest costs. Already, the Congressional Budget Office projects that cumulative federal government gross interest costs over the ten-year budget period (2024 through 2033) will reach $13 trillion. The structure of the Clock is designed to account for both the near-term and long-term effects of the Federal Reserve’s actions on the fiscal posture of the federal government.
The debt ceiling is the federal government’s most important fiscal barometer, and it should be treated as a ceiling by enacting budgets that prevent increases in the debt to the point that it would risk breaching the ceiling. Such an attitude would also eliminate the need for the Treasury to undertake extraordinary measures. The Review Committee hopes the Debt Default Clock will help the public to read the immediacy of the danger by showing in a clear and simple way how close the federal government is to default for reasons outside any statutory limit on the debt. Its purpose is to spur fiscal policy makers to change course before it’s too late.
The Twelve Tests
The Clock continuously measures twelve of the most relevant budget factors, or tests, each of which is framed as a simple yes-no question. At any given moment, the status of the twelve factors collectively determines the number of minutes from midnight the Clock stands at the time of its latest update. The number of minutes, of course, changes as time passes and new data is received. Each factor assesses not just where things currently stand, including the changes that have taken place since the July 2022 update, but also where things are projected to move over the course of the next ten years. Each of the twelve tests is objective. None is arbitrary or influenced by opinion.
Here are the twelve factors:
- Do federal outlays exceed 17.5 percent of gross domestic product (GDP)?
- Is there a U.S. dollar-denominated debt ceiling in law presently, and will the projected federal debt stay below that ceiling during the ten-year budget period?
- Does the debt held by the public exceed 70 percent of GDP, and does the gross federal debt exceed 100 percent of GDP?
- Do gross federal interest payments exceed 15 percent of federal revenues?
- Do gross federal interest payments, on a sustained basis, exceed 70 percent of the money the federal government brings in through the issuance of new debt?
- Does the ratio of debt held by the public exceed 80 percent of the gross debt?
- Does the debt held by foreigners exceed 50 percent of the debt held by the public?
- Is the structure of the debt, specifically regarding the dollar volume of the debt in Treasury inflation-protected securities (TIPS), Treasury Floating Rate Notes (FRNs), and other debt instruments that mature in five years or less, exceed 50 percent of all marketable Treasury securities?
- Are federal revenues below 17.5 percent of GDP?
- Is the rate of real U.S. economic growth, as measured in GDP, at 3 percent or above on an annual basis?
- Has Congress enacted a law prohibiting the Treasury from resorting to extraordinary measures in the future?
- Is Congress scaling back programmatic “mandatory spending” and eventually phasing it out?
While economists and financial experts will readily appreciate the relevance of each of these factors, we realize that the public at large may find them confusing. For everyone’s benefit, the following is a detailed, plain-English explanation of each factor, together with its underlying data and assumptions.
Warning: Default Ahead
The federal government will reach insolvency—the point of no return—when the federal government fails at least ten of the twelve tests set according to the questions listed above. As of now, the federal government is currently failing in eight of them. These are Factors 1, 2, 3, 4, 8, 10, 11, and 12. Four factors (Factors 5, 6, 7 and 9) qualify to buy one or two minutes from midnight each, based on the current circumstances and projections. However, the design of the Clock permits the Review Committee to discount up to two factors at any one time. As will be explained later, the Review Committee has chosen to discount two of these four factors. Therefore, as of today, the Debt Default Clock stands at just two minutes from midnight. This is two minutes closer to midnight compared to where the minute hand stood at the time of the last review in July of 2022. Specifically, the outcomes have declined in all ten of the non-discounted factors, although some in ways that do not lead to decreases in the minutes from midnight. In eight of these cases, the applicable factors were already failing to buy any time away from midnight. On the other hand, Factors 2 and 4 declined to the degree that neither buys the one minute away from midnight, when each bought a minute at the time of the July 2022 review. Previously, Factor 2 bought one minute away from midnight because Public Law 117-73 was enacted. Now, this statutory ceiling is being evaded by the Treasury Department through its use of extraordinary measures. Factor 4 bought one minute from midnight in July 2022 because gross federal interest costs were not above 15 percent of federal revenues at that time. Gross federal interest costs now exceed 15 percent of revenues and are projected to remain above this threshold throughout the ten-year budget period.
As indicated earlier, the design of the Clock permits the Review Committee to discount up to two factors at any one time. On this basis, the Committee has decided to discount Factors 7 and 9. The first of these measures assesses the percent of federal debt held by foreigners. The current projections of foreign-held federal debt, as it did in the previous review, are that it will increase modestly in dollar terms over the next ten years but will decline relative to the total amount of debt held by the public. Regarding Factor 9, current projections are that federal revenues are now above the applicable threshold as a share of gross domestic product over the last decade and will stay at or above this threshold during the next ten years. Thus, Factors 7 and 9 are currently not significant contributors to the danger of federal insolvency and default.
As indicated earlier, Factors 5 and 6 each buy one minute from midnight. Factor 5 buys one minute from midnight because gross federal interest costs relative to the issuance of new debt are below 70 percent. It bought this one minute at the time of the July 2022 review. On the other hand, gross federal interest costs are growing dramatically, and in a way that they will exceed 70 percent of the money the federal government raises through the issuance of new new debt in 2027. Factor 6 also continues to buy one minute from midnight, as it did with the July 2022 review. Specifically, the debt held by the public does not exceed 80 percent of the gross debt at this time, but the current projection is that it will exceed its threshold in 2024.
Therefore, if the Review Committee decides to maintain the discounts for Factors 7 and 9 in the future, the federal government will reach the circumstance of fiscal crisis and insolvency at some point in 2027 and ultimately default a short time later. It is essential to keep in mind, however, that Factor 5, relative to all the other factors, is volatile. This means it could cross over to the wrong side of its threshold far earlier than 2027. Regarding Factor 6, it is already on the cusp of crossing over to the wrong side of its threshold. Finally, the longer it waits before taking the necessary steps to avoid insolvency and default — which include reducing the rate of growth in spending, limiting the debt and better controlling interest costs — the more politically difficult and economically painful the steps to avoid fiscal crisis and default will become.
The Debt Default Clock is ticking.
Learn More
The Debt Default Clock Review Committee responds to the new debt ceiling and the use of “extraordinary measures.”
Databases behind ten of the factors of Debt Default Clock
Factor #1: Do federal outlays exceed 17.5 percent of GDP?
Federal outlays have been well above 17.5 percent of GDP every year since 2014. They peaked in 2020 at a level over of 31 percent of GDP because of the spending laws enacted in response to the coronavirus pandemic. Spending relative to GDP declined from this peak in both 2021 and 2022. However, current projections show that outlays will far exceed 17.5 percent of GDP in every year of the budget period. In the final year of the period (2033) outlays will be at 24.1 percent of GDP. Thus, Factor #1, as with the previous update of the Debt Default Clock, remains set at buying zero minutes from midnight. The data bases for this factor are as follows: 1) Congressional Budget Office, “Budget and Economic Data,” under the heading “Historical Budget Data” and subheading “Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public as a Share of GDP Since 1962,” February 2023, here; and 2) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” February 2023, p. 6, here.
Factor #2: Is there a dollar-denominated debt ceiling in place, and if so, does the debt subject to limit stay under the ceiling during the budget period?
Congress put a dollar-denominated debt ceiling in place with the enactment of Public Law 117-73 in December of 2021. Public Law 117-73 raised the debt ceiling by $2.5 trillion, setting it at just shy of $31.4 trillion. This let Factor #2 buy one minute from midnight at the time of the last update in July 2022. In January 2023, however, the Treasury started employing extraordinary measures to avoid breaching the ceiling. Employing extraordinary measures constitutes an evasion of the dollar-denominated debt ceiling set by the enactment of Public Law 173-73. Further, Congress has demonstrated that it had no intention of treating this debt ceiling as a real ceiling by following a budget plan that avoids running up against it. Congress is now struggling to address the matter of the debt ceiling before the time when extraordinary measures run out. There is a good chance that Congress will revert to the habit of suspending the debt ceiling. Worse, it could permanently repeal the debt ceiling law. In either case, there would be no limit on increasing levels of federal debt. Under these circumstances, the Review Committee chose to take away the one minute it awarded under Factor 2 at the time of the last update. The data for Factor #2 is from CBO’s “Budget and Economic Outlook, 2023 to 2033,” February 2023, p. 10, found here.
Factor #3: Does the debt held by the public exceed 70 percent of GDP, and does the gross debt exceed 100 percent of GDP?
The current data on both the debt held by the public and the gross debt show that they have been in the past and will in the future continue to exceed 70 percent and 100 percent of GDP respectively. In fact, the debt problem has been made much worse by the additional spending that has taken place in response to the coronavirus pandemic. The debt held by the public was at 97 percent of GDP at the end of fiscal 2022 and by the end of the budget period (2033) is to rise to 118.2 percent of GDP. The gross debt was at 123.2 percent of GDP at the end of fiscal 2022 and is to be at 132.3 percent of GDP at the end of fiscal 2033. Since both the debt held by the public and the gross debt already exceed 70 and 100 percent of GDP respectively by a wide margin and are projected to remain well above these thresholds, Factor #3, as was the case at the time of the prior review, buys zero minutes from midnight. Looking ahead, this factor will buy one minute from midnight if the debt held by the public and the gross debt are projected to fall below their respective thresholds at some time during the budget period. It will buy two minutes from midnight if they actually fall below their thresholds and are projected to remain below them throughout the budget period. The data bases for Factor 3, whether provided directly or used to calculate the outcome, are as follows: 1) Office of Management and Budget, “Historical Tables,” Table 7.1, in “Budget of the U.S. Government, Fiscal Year 2024,” March 9, 2023, here; 2) Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033,” February 2023, p. 10, here; 3) Congressional Budget Office, “Budget and Economic Data,” under the subheading “10-Year Economic Projections,” February 2023, here.
Factor #4: Do gross interest costs exceed 15 percent of federal revenues?
The most dramatic deterioration in the federal government’s fiscal position is now taking place with exploding interest costs. Gross interest costs are projected for this year to be more than 30 percent higher than for last year. This outcome stems from the related increases in inflation and interest rates. At the time of the last Clock review in July 2022, the level of gross federal interest costs and revenue projections showed that the interest costs would exceed 15 percent of revenues in 2024. In this review, gross interest costs are found to far exceed the 15 percent of revenues this year (2023). While Factor #4 bought one minute from midnight at that the time of the prior review, it now buys zero minutes from midnight. The data bases for this factor are as follows: 1) Department of the Treasury, “Interest Expense on the Debt Outstanding,” here (accessed March 29, 2023); 2) Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033,” February 2023, p. 6, here; 3) Congressional Budget Office, “Budget and Economic Data,” under the heading “Historical Budget Data” and subheading “Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public Since 1962 through the most recent year completed,” February 2023 here; and 4) and under the heading “Spending Projections by Budget Account” (specifically Line 1941, “Interest on Treasury Debt Securities (gross)”), February 2023, here.
Factor #5: Do gross federal interest payments, on a sustained basis, exceed 70 percent of the money the federal government brings in through the issuance of new debt?
The July 2022 update of the Debt Default Clock resulted in the Review Committee determining there is a sustained pattern of increasing federal interest payments relative to the money brought into the federal government by the issuance of new debt. On this basis, the Review Committee awarded Factor 5 with buying one minute from midnight on the Clock. It now finds that this pattern is continuing and results in a projection that gross interest costs will exceed the threshold of 70 percent of new debt in 2027. However, it is essential to point out two things about Factor 5. First, the explosion in projected gross federal interest costs makes it highly likely that it will remain on this sustained path that leads to those interest payments exceeding 70 percent of the money the federal government raises through the issuance of new debt. Second, Factor 5 is the most volatile of the factors behind the Clock and could reach the projected threshold far earlier than 2027. The data bases use for calculating this factor are: 1) Office of Management and Budget, “Historical Tables,” Table 7.1, “Federal Debt at End of Year:1940-2028,” March 9, 2023, (accessed March 29, 2023) here; 2) Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033” February 2023, p.10, here; 3) Department of the Treasury, “Interest Expense on the Debt Outstanding,” (accessed March 29, 2023) here; and 4) Congressional Budget Office, “Budget and Economic Data,” under the heading “Spending Projections by Budget Account” (specifically Line 1941, “Interest on Treasury Debt Securities (gross)”), February 2023, here.
Factor #6: Does the debt held by the public exceed 80 percent of the gross debt?
Factor 6 measures what is currently projected to be an increasing share of the gross federal debt that must be financed by investors outside the federal government (“debt held by the public”), as opposed to trust funds maintained by the federal government itself. This greater reliance on debt held by the public increases the pressure on the Treasury to attract investors to finance the debt. The Debt Default Clock estimates that the debt held by the public will exceed 80 percent of the gross debt starting in 2024. This is a year earlier than what the Review Committee found at the time of its last review in July 2022. As with the previous update, however, Factor 6 buys one minute from midnight. If the projection proves accurate, Factor 6 will cease to buy one minute from midnight next year. The projected data base for this factor is found at: Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033,” February 2023, p. 10, here. The historical data is found at the Office of Management and Budget, “Historical Tables, Table 7.1, Federal Debt at the End of the Year: 1940-2028,” March 9, 2023, here.
Factor #7: Does the debt held by foreigners exceed 50 percent of the debt held by the public?
As with the July 2022 update of the Debt Default Clock, this update shows that the dollar value of the debt held by the public owned by foreigners is projected to remain below 50 percent of all the debt held by the public throughout the ten-year budget period. This is because in recent years the rate of growth in the dollar level of foreign-held federal debt, which in general continues to grow, is also moving in the direction of making up a smaller portion of all debt held by the public. The increase in the value of foreign-held Treasury securities is not keeping up the rapid and large-scale increases in the broader debt held by the public. The Clock’s projection shows that foreign-held federal debt will fall to below 25 percent of all the debt held by the public at the end of the 10-year budget period in 2033. This means that Factor 7 would have continued to buy two minutes away from midnight, but the Review Committee has decided to extend its earlier decision to discount Factor 7. It continues to believe this trend will lessen the risk that foreign powers will be able to weaken the financial and political position of the federal government by taking advantage of the government’s debt exposure. By way of reference, an article by Tyler Durden, which is found here, lists the following five countries as having the largest holdings of Treasury securities; 1) Japan ($1.076 trillion); 2) China ($867 billion); 3) the United Kingdom ($655 billion); 4) Belgium ($354 billion); and 5) Cayman Islands ($284 billion). Clearly, China is the country of greatest security concern for the United States. The data bases for this Factor are: Department of the Treasury, “Ownership of Federal Securities,” at here (accessed March 30, 2023); 2) “Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” February 2023, p. 10, here; and 3) Congressional Budget Office, “Historical Budget Data,” in the category entitled “Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public, Since 1962,” February 2023, here.
Factor #8: Will short-term maturities and floating rate obligations of the Treasury decline from the 2018 level of 73.1 percent of all marketable Treasury debt?
The Monthly Statement of the Public Debt of The United States (the “Monthly Statement”) describes six types of securities comprising the marketable Treasury debt outstanding. They are Treasury Bills (“Bills”), Treasury Notes (“Notes”), Treasury Bonds (“Bonds”), Treasury Inflation-Protected Securities (“TIPS”), Treasury Floating Rate Notes (“FRN’s”) and Federal Financing Bank (“FFB”) securities. The Monthly Statements, including attached spreadsheets, are available at Monthly Statement of the Public Debt (MSPD) | U.S. Treasury Fiscal Data (accessed March 30, 2023) Treasury Bills are short-term obligations with a maturity of less than one year. Treasury Notes are issued with maturities of between one and ten years. Treasury Bonds are issued with maturities longer than ten years. For the purposes of the Debt Default Clock, on any given date, all Bills and previously issued Notes and Bonds maturing within five years of that date, along with all TIPS and FRN’s, which are adjustable rate securities subject to periodic adjustments in their interest rates, are categorized as short-term maturities and floating rate obligations (“STMFROs”). The Monthly Statement does not provide the maturity dates for FFB securities, but generally describes them as long term. Thus, they are not included in STEMFROs and set aside here.
As of March 31, 2023, all the STMFROs constituted 73.2 percent of all the marketable Treasury debt outstanding, as measured in dollars. This structure of the marketable debt jeopardizes the financial position of the Treasury by leaving it vulnerable to increases in both the inflation rate and interest rates. In fact, much of the damage stemming from this structure of the debt has already been incurred. This is because, as shown with Factors 4 and 5, federal interest costs have already exploded. It is the view of the Debt Default Clock Review Committee that the portion of all Treasury marketable securities made up by the STMFROs, as measured in dollars, should be reduced to 50 percent of the total. Factor 8 of the Debt Default Clock will move the minute hand one minute away from midnight for every five percentage points reduced from the 71.3 percent of marketable securities that constituted the STMFROs at the end of fiscal year 2018. Unfortunately, Factor 8 is moving in the wrong direction. Thus, it continues to buy zero minutes from midnight, which is where it stood in July 2022.
It is important to note that the Review Committee also continues to monitor the bid-to-cover ratios at auctions for four select Treasury securities. These are the 26-week bill, the 10-year note, the 30-year bond and the 10-year TIPS. These bid-to-cover ratios compare the amount of money investors bid on the applicable security at auction to the amount of money the Treasury is seeking to raise at the same auction. A persistent or rapid decline in the bid-to-cover ratios would likely signal a growing loss of confidence by investors in the ability of the federal government to manage its debt. As of the end of March 2023, the data reveal reasonably steady bid-to-cover ratios in each of these four securities since the time of the last update in July 2022. Generally, the average ratio is about 2.5 to 1. While the Review Committee does not find it alarming at this point, it thinks it is odd that the ratios for the 26-week bill have not increased significantly since the interest rates on these short-term securities are much higher than a year ago. It is reasonable to expect that investors would be drawn to this type of security at this time. Perhaps, they think it is unlikely that interest rates will decline in the relatively near term. If so, federal interest costs will remain high even if the government stabilizes its level of debt, which it is not doing. While the ratios here are not being incorporated into Factor 8, they will be used as a secondary source for informing the Review Committee of any emerging problems resulting from the structure of the federal debt.
Factor #9: Are federal revenues below 17.5 percent of GDP?
The data bases for Factor 9 are found at: 1) Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033,” February 2023, p. 6, here; 2) Congressional Budget Office, “Historical Budget Data/Revenues, Outlays, Deficits, Surpluses and Debt Held by the Public Since 1962, as a share of GDP,” February 2023, here. Federal revenues were at 19.6 percent of GDP in 2022. CBO projects revenues will remain above the 17.5 percent threshold on average throughout the ten-year budget period. Accordingly, the Review Committee finds that Factor 9 would have bought two minutes from midnight on the Clock. However, the Committee has decided to continue discounting Factor 9, in accordance with the rules governing the Clock. This discount was also applied in the prior update of the Clock. This means that revenue shortfalls, by historical standards, are not a significant contributing factor to the onset of fiscal crisis. However, this determination will be reversed if future updates show declines in the ratio of revenues to GDP compared to the current projections.
Factor #10: Does the real rate of U.S. economic growth, as measured in GDP, meet or exceed 3 percent annually?
The data bases for Factor 10 are found at: 1) Bureau of Economic Analysis (BEA), Department of Commerce, here, Table 1 under “Tables Only,” under the heading “Table 5. Gross Domestic Product: Annual Percentage Change” here (historical data); 2) Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033,” February 2023, p. 35, here.
The negative impact of the coronavirus pandemic on U.S. economic growth was very large in calendar year 2020. It shrank by 3.5 percent in real terms. However, the rebound was sharp in 2021, with a real rate of growth at 5.7 percent. CBO is now stating that the real rate of growth backed off in 2022, with a rate of 1 percent. Further, CBO is projecting that annual rates of real growth will be well below the three percent threshold for the remainder of the budget period. In July of 2022, the Review Committee found that Factor 10 bought zero minutes from midnight. Now, it finds that it continues to buy zero minutes from midnight.
Factor #11: Has Congress enacted a law prohibiting the Treasury from resorting to “extraordinary measures” in the future?
This is a purely qualitative factor. Therefore, there are neither databases, nor formulas, nor graphs associated with Factor 11. It adjusts the minute hand on the Debt Default Clock on the basis of the legislative actions, or the lack thereof, taken by Congress in the applicable legislative period. Specifically, if either house of Congress has passed such a bill during the congressional session in operation at the time of a review, it will buy one minute away from midnight. If such a law is enacted and remains on the books at the time of the applicable review by the Review Committee, it will buy two minutes from midnight. Current law not only permits the Treasury to undertake extraordinary measures, the Treasury is actively applying them at this time. Since Congress has taken no action to prohibit the use of them, Factor 11 continues to buy zero minutes from midnight, which is where it stood at the last review in July 2022.
As described earlier, on December 16, 2021, Public Law 117-73 was enacted to replace a previous suspension of the debt ceiling with a dollar-denominated debt ceiling. Given that the Treasury is now resorting to extraordinary measures in managing the debt, the Review Committee continues to view these measures as “soft” faults by the definition of default under the Debt Default Clock. This definition is a failure by the Treasury to make timely payments on any debt obligation. Further, it sees these as precedents for expanding such measures to apply to certain categories of debt held by the public. The Treasury, once again, is setting bad precedents for what may be called “hard” defaults.
Factor #12: Is Congress scaling back programmatic “mandatory spending” and eventually phasing it out?
Mandatory programmatic spending, which sets aside net interest payments, does not require the annual appropriation of money by Congress. Effectively, these spending programs are on autopilot. According to CBO, programmatic mandatory spending was more than $4.1 trillion in 2022. This compares with roughly $2.7 trillion in 2019. The large jump is due to the mandatory spending in the various pandemic response bills enacted to date. The same analysis indicates this number will fall back to a bit more than $3.8 trillion in 2023, but this is dependent on Congress not enacting additional spending laws in this area. As it stands, CBO projects mandatory spending to grow to $6.14 trillion in 2033.
Congress needs to rein in these programs by moving them back into the appropriated accounts of the budget to require annual reviews this spending. By starting to take such steps, Congress should be able to reduce this category of spending dramatically. In fact, it should phase it out altogether. Under the Debt Default Clock, if Congress returns enough of this spending to the appropriated category so that by the end of the ten-year budget period the mandatory category is less than what it was in 2018, it will will buy one minute away from midnight. If the mandatory category is projected to be phased out altogether by the end of the budget period, it will buy two minutes from midnight. Therefore, Factor #12 continues to buy no minutes from midnight. This is where it stood with the last review in July 2022.
The data bases for Factor #12 are found at: Congressional Budget Office, “The Budget and Economic Outlook: 2023 to 2033,” February 2023, p. 6, here; Congressional Budget Office, “Historical Budget Data, Data on revenues, outlays, and the deficit or surplus from 1962 through the most recent year completed” February 2023, here.
