In a newly released report titled "Fiscal Policy in the Great Election Year," the International Monetary Fund (IMF) has pointed out the alarming state of the federal deficit in the United States. The report emphasizes the urgent need for immediate actions to mitigate the crisis and prevent further increases in government spending.

According to the IMF, crisis-era support measures must be terminated promptly, and there should be a resistance to the political budget cycle and the drive to escalate spending. The report emphasizes the necessity of implementing reforms to control rising spending pressures, such as entitlement reforms in advanced economies with aging populations, and improving the targeting and efficiency of social safety nets to support vulnerable populations.

The IMF projects that by 2029, global public debt is expected to reach nearly 99% of GDP, largely driven by policies in China and the United States. Loose fiscal policies and mounting debt levels, combined with monetary policy tightening, have contributed to the rise in long-term government yields and increased volatility in the US, posing risks elsewhere through interest rate spillovers, states the report.

Data from the US Department of the Treasury reveals that the federal government is currently facing a $1.1 trillion deficit in fiscal year 2024, since it began on October 1, 2023. This follows a deficit of $1.7 trillion in fiscal year 2023, which was $320 billion higher compared to the previous year.

One concerning consequence of the escalating deficit is the increased cost of paying down the debt for the government, owing to the rising government yields. On April 19, the 10-year bond yield stood at around 4.6%, while on January 2, it closed approximately at 3.9%. Notably, this makes it more expensive for the federal government to address the growing debt burden.

A recent analysis by the Committee for a Responsible Federal Budget highlights that servicing the debt has already cost $429 billion in the first half of fiscal year 2024, equivalent to 39% of the amount of individual income tax paid thus far. With projections indicating that this figure could rise to $870 billion by year-end, interest payments are on track to surpass both defense and Medicare spending this year, and become the second-largest item in the budget.

In an attempt to address the issue, President Joe Biden unveiled a budget plan in March that aims to reduce the deficit by $3 trillion over the next decade. This plan primarily focuses on tax increases for wealthy individuals and corporations. However, it is important to note that President Biden's spending has not been curtailed either. Early in his presidency, he secured approval for a $1.7 trillion stimulus package, leading to a deficit of $2.7 trillion in fiscal year 2021. The deficits were $1.4 trillion and $1.7 trillion in fiscal years 2022 and 2023, respectively.

During the presidency of Donald Trump, deficits grew significantly due to COVID-19 spending and substantial tax cuts, predominantly benefiting corporations and the wealthy. Congressional Budget Office data reveals that the deficit climbed to $3.1 trillion in fiscal year 2020, compared to $984 billion in fiscal year 2019. In his first full fiscal year in office, fiscal year 2018, the federal deficit rose to $779 billion, $113.3 billion higher than fiscal year 2017, as reported by the Treasury Department's Bureau of the Fiscal Service.

It is crucial that immediate measures are taken to address the rising federal deficit and the subsequent global debt crisis, as highlighted by the IMF. With mounting public debt and increasing interest payments, the need for fiscal reforms and responsible financial management becomes paramount to safeguard the economic stability and sustainability of the United States and beyond.