National Debt Headed for Record as Trump Takes Charge

Happy Friday! We’re just a couple of days away from the inauguration of Donald Trump as the 47th president of the United States — and that swearing-in ceremony has now been moved indoors for the first time since 1985 because of the frigid temperatures forecast for D.C. on Monday.

Here’s what else is happening.

National Debt Headed for Record Levels as Republicans Plan New Tax Cuts

The U.S. is on track to add $22 trillion to the national debt over the next 10 years, the Congressional Budget reported Friday in its updated budget and economic outlook. 

A continuous chain of trillion-dollar-plus annual budget deficits, along with trillions more in interest rate expenses, will push government debt to record levels in just four years when measured relative to the size of the economy. Total debt held by the public — a calculation of the national debt that ignores funds the government owes to itself — will equal 107% of the economy by 2029, surpassing the 106% level seen just after World War II. And the outlook may be worse, since the CBO did not factor in an extension of the 2017 Trump cuts, which Republicans are expected to attempt to pass this year, potentially adding $4.6 trillion more in revenue losses relative to the CBO baseline over the next decade.

By 2035, the debt will top $52 trillion, equal to about 118% of gross domestic product. At the end of the most recent fiscal year, the debt stood at $28.2 trillion, or 98% of GDP.

Outlays will continue to rise, rising from 23.3% of GDP in 2025 to 24.0% of GDP by 2035, driven largely by mandatory programs like Social Security and Medicare. Interest costs will rise, as well, exceeding defense spending every year. Meanwhile, discretionary spending — which includes defense and much else of what the government does — will shrink relative to the size of the economy, even as the topline increases.

Revenues will grow, as well, even as they fail to match spending. CBO projects that revenues, projected to be 17.1% of GDP in 2025, will rise to 18.3% of GDP by 2035 — though that also assumes that the 2017 tax cuts expire at the end of this year.

The updated figures released Friday represent a slight improvement over the last set of projections, with a bit more revenue added to the 10-year forecast, but they do little to alter the basic trajectory. “It doesn’t change the policy picture,” CBO Director Phillip Swagel said at a press conference Friday. “The fiscal situation is daunting, the debt trajectory is unsustainable. It’s just the economy is a bit bigger than we thought it was last June, and therefore there’s more revenue.”

Economic outlook: CBO projects positive growth for the economy in the coming years, but at a slower pace. Dropping from the 2.4% rate recorded in 2024, GDP growth is projected to hit 1.9% this year and 1.8% in 2026, then maintain that rate through 2035. About 80% of the growth is expected to come from improved labor productivity, with the rest driven by the increasing size of the labor force.

There’s good news on inflation. CBO expects the inflation rate to fall to 2.2% this year, dropping to the Federal Reserve’s target rate of 2% by 2027, where it remains for the foreseeable future.

Interest rates are headed lower, too, CBO predicts. The 10-year Treasury rate is projected to fall to 4.0% in 2025, with the Fed funds rate dropping to 3.7%. Rates move moderately lower after that, ending 2034 at 3.8% and 3.2% respectively.

Big battles over taxing and spending ahead: The latest CBO estimates arrive as Republicans dive into a debate over their fiscal plans, which focus heavily on tax cuts but also potential spending reductions, which could be significant. One problem is that tax cuts are generally easier to agree upon than spending cuts — a major reason the deficit is so large and the debt continues to grow.

Kentucky Republican Rep. Andy Barr warned his colleagues this week that “the bond vigilantes are coming,” referring to Wall Street investors who are preparing to punish excessive government borrowing by driving interest rates higher. Whether those vigilantes exist is an open question, but there is no doubt that interest rates have risen, raising the cost of maintaining the national debt. Barr, a member of the Republican Study Committee who sits on the Financial Services Committee, said the rise in rates is a “tipping point,” one that puts lawmakers on notice that they must present a viable plan for deficit reduction or pay a heavy price in the international markets.

Republicans appear to be serious about lining up major spending cuts, though it remains to be seen if they can enact them. Punchbowl News reported Friday that Republicans in the House are circulating a 51-page list of dozens of potential reforms and spending cuts, which touch on everything from healthcare and green energy subsidies to the tax treatment of corporate perks and scholarships. 

Ozempic, Wegovy and Other Drugs Chosen for New Medicare Price Negotiations

Popular diabetes and weight-loss drugs Ozempic, Rybelsus and Wegovy are among 15 drugs selected by the Biden administration for a second annual round of Medicare price negotiations meant to bring down costs for seniors and people with disabilities.

Under the Inflation Reduction Act of 2022, the government will negotiate prices for the newly chosen drugs with their manufacturers this year and any negotiated prices will take effect in 2027. The Biden administration announced the list well before a February 1 deadline. It said that about 5.3 million Medicare Part D beneficiaries used these drugs between November 2023 and October 2024 and the drugs accounted for about $41 billion, or about 14%, of Medicare Part D costs during that time.

An initial group of 10 drugs was chosen for negotiations last year, and Medicare reached deals for lower prices on all of them, with discounts ranging from 38% to 79% compared to list prices. Those negotiated prices will take effect in 2026, but Medicare says that if the negotiated rates had been in effect in 2023, they would have resulted in estimated savings of $6 billion, or about 22%. Medicare beneficiaries are expected to save $1.5 billion in out-of-pocket costs for those drugs next year.

“Last year we proved that negotiating for lower drug prices works. Now we plan to build on that record by negotiating for lower prices for 15 additional important drugs for seniors,” Health and Human Services Secretary Xavier Becerra said in a statement.

Separately, the Biden administration says that the Inflation Reduction Act’s $2,000 annual cap on out-of-pocket drug costs for those on Medicare Part D will help 11 million people save a combined $7.2 billion, or about $600 per enrollee.

The drugs picked for negotiations this year also include Trelegy Ellipta, a prescription inhaler for chronic obstructive pulmonary disease and asthma; and Xtandi, Pomalyst, Ibrance and Calquence, used to treat various types of cancer. The other names on the list are Austedo and Austedo XR; Breo Ellipta; Janumet and Janumet XR; Linzess; Ofev; Otezla; Tradjenta; Vraylar; and Xifaxan.

Together, the 25 drugs chosen for the first two rounds of negotiations represent more than one-third of Medicare Part D prescription drug costs, the Biden administration said. Up to 15 more drugs are supposed to be chosen next year and as many as 20 can be chosen each time after that.

The administration treated Ozempic, Rybelsus and Wegovy — different formulations of the drug semaglutide, approved by the Food and Drug Administration at different times — as one class. Drug giant Novo Nordisk, which makes all three drugs and has sued to block drug-price negotiations, criticized the administration action.

“Novo Nordisk remains opposed to government price setting through the IRA and has significant concerns about how the law is being implemented by this administration, including aggregating multiple products that individually would not meet the requirements of the statute,” the company said in a statement to news outlets.

Novo Nordisk and the other drug companies involved now have until February 28 to decide if they will participate in negotiations. Those talks will now be overseen by the Trump administration, even as some Republicans have called for ending such negotiations and drugmakers have sued to end them.

“The IRA price setting process is dangerous for millions of Americans who rely on innovative treatments and created unnecessary, costly bureaucracy. In rushing out this list in their final days, the Biden administration once again fails to address the true challenges facing seniors and Medicare,” Stephen J. Ubl, the president and CEO of drug industry trade group PhRMA, said in a statement.

While negotiated prices for Ozempic and similar drugs could add up to substantial savings, the Biden administration has also proposed to allow Medicare and Medicaid to cover the drugs not just as treatments for diabetes and heart disease but for weight loss as well, a shift that reportedly could come with costs as high as $35 billion over 10 years. The Trump administration will decide whether to implement that proposal, and Trump’s nominee for health secretary, Robert F. Kennedy Jr., has criticized the drugs in the past, though he said recently that they “have a place.”

Column of the Day: How DOGE Could Be Different

Washington Post columnist Matt Bai suggests that Elon Muck, Vivek Ramaswamy and their Department of Government Efficiency, or DOGE, might be on a different mission than the many previous reformers who failed in their efforts to to reduce federal deficits and bring spending in line with revenues.

Bai says that Musk and Ramaswamy, along with other Trumpists, seem to fit into an ideological category he calls “‘deep state’ destroyers” — people “who regard the federal government as a statist and repressive enterprise — inherently wasteful, culturally elitist, hopelessly corrupt, and increasingly tyrannical in its rules and regulations. They don’t care about deficit spending, but for a different reason than the far left: Their goal is to see the whole machine come tumbling down.”

Bai Argues that slash-and-burn bent means that analysts focused on debt and deficits are missing the point when they forecast that DOGE is destined to fail , like so many efforts before it: 

“What if these guys don’t actually give a flip about making government fiscally responsible? What if their only goal is simply to eliminate as much of the bureaucracy as they can?

“Maybe the operative question over the next year isn’t whether Musk and Ramaswamy can cut $2 trillion from a roughly $7 trillion budget. (They’re already backing off that crazy number, anyway.) Maybe the more salient question is whether they can succeed in taking a machete to a lot of federal agencies with endless initialisms and sprawling, beige-walled offices — and whether that experiment would, in the end, make life better or worse for most Americans. …

“How the public judges the effort might depend, in large part, on whether Musk and Ramaswamy — and their allies in the new administration — are actually looking to make government smaller and more accountable, or whether the real agenda is just to help their corporate friends get out from under taxes and regulation. The former might lead to genuine reform; the latter is bound to widen inequality and harm a lot of vulnerable Americans.”

Read the whole column at The Washington Post.

Fiscal News Roundup

• National Debt Races Toward Record Level as Trump Takes Office – Washington Post
• CBO Projects U.S. Debt to Grow $23.9 Trillion in 10 Years, Not Including Costs of Extending Tax Cuts – Associated Press
• Yellen: Debt Limit Will Be Hit Day After Trump’s inauguration – The Hill
• Treasury to Begin ‘Extraordinary Measures’ as US Approaches Debt Cliff – Politico
• Surging Long-Term Rates Stoke GOP Tensions on Paying for Tax Cut – Bloomberg
• IRS Commissioner Daniel Werfel Says He’ll Step Down on Trump’s Inauguration Day – Associated Press
• Trump Announces White House Economic Policy Team – CNBC
• Trump Team Has Wealth-Fund Ambitions for Small Lending Agency – Bloomberg
• Canadian Foreign Minister Warns of ‘Trump Tariff Tax’ on Americans as Threat of 25% Tariff Looms – Associated Press
• IMF Sees Steady Global Growth, but Warns That Trump Tariff, Tax and Deportation Plans Cloud Outlook – Associated Press
• U.S. Economy Continues to Outperform the Rest of the World, IMF Says – Washington Post
• Ohio Lt. Gov. Jon Husted Is Tapped to Fill JD Vance’s Senate Seat in Ohio – Washington Post
• Nearly Half of U.S. Says Healthcare Headed in Wrong Direction – Gallup News
• Supreme Court Gives Green Light to Law That Could Ban TikTok This Weekend – NBC News
• Biden Won’t Enforce TikTok Ban, Official Says, Leaving Fate of App to Trump – Associated Press
• Progressives Are Frustrated by Biden’s Final-Days Warning of Billionaire Influence – Associated Press

Views and Analysis

• Trump Plans an Audacious Grab for Congressional ‘Power of the Purse’ – Karen Tumulty, Washington Post
• The Education of Elon and Vivek – Matt Bai, Washington Post
• What Did the Trump Tax Cuts Do? Nobody Really Knows – Andrew Duehren, New York Times
• As Biden Exits, How Will He Be Remembered for His Handling of the U.S. Economy? – Aimee Picchi, CBS News
• The Essential Incoherence of the End of the Biden Presidency – David Dayen, American Prospect
• Biden Failed to Win the Working Class. Democrats Might Want to Stop Trying – Fareed Zakaria, Washington Post
• How a Company Makes Millions Off a Hospital Program Meant to Help the Poor – Ellen Gabler, New York Times
• Why Are Interest Rates Rising When the Fed Has Been Cutting Them? – Stan Choe, Associated Press