WASHINGTON – U.S. Senators Bill Cassidy, M.D. (R-LA), Mike Crapo (R-ID), Chuck Grassley (R-IA), John Cornyn (R-TX), John Thune (R-SD), Richard Burr (R-NC), Rob Portman (R-OH), Pat Toomey (R-PA), Tim Scott (R-SC), James Lankford (R-OK), Steve Daines (R-MT), Todd Young (R-IN), Ben Sasse (R-NE), and John Barasso (R-WY) announced the release of a Congressional Budget Office (CBO) report on the effects of rising inflation on the federal budget, businesses, and American households. This comes after Senate Finance Republicans sent a letter to the CBO on February 15th, asking for detailed information on the budgetary effects of inflation. The CBO report revealed that rising inflation and interest rates could increase federal deficits by $2.3 trillion from 2022 to 2031.
“In one year, President Biden’s spending has ignited the highest inflation in 40 years. When he claims his economic policy benefits Americans, it shows how out of touch he is,” said Dr. Cassidy.
According to the CBO report:
- “In general, if inflation was persistently higher than it is in the Congressional Budget Office’s economic forecast and if interest rates were also significantly higher but all other inputs to the budget projection process were unchanged, then projected budget deficits and debt would be larger in dollar terms, on net, throughout the 2022-2031 period.”
- To provide an illustrative estimate, CBO analyzed how its budget projections would have changed from its February 2021 pre-inflation period if it had instead used the higher paths for inflation and interest rates (“high-rate scenario”) that have arisen and have been fueled by Biden Administration policies. Under that scenario, CBO says:
- “The projected deficit would be larger by $2.3 trillion from 2022 to 2031 under the high-rate scenario than in the baseline.”
- “The larger budget deficits would arise primarily because the government’s net interest costs would be [$2.5 trillion] higher…”
- “Larger increases in wage rates and prices generally lead to greater labor income, profits, and other nominal income, which in turn generate larger collections of individual income taxes, payroll taxes, and corporate income taxes.” How much? $3.4 trillion increased revenue in the high-rate scenario, partly stemming from stealth taxes on phantom gains that are not gains people see in purchasing power of their wages and incomes. Even worse, because not all the aspects of the tax code are indexed to inflation, more and more middle- and working-class Americans will become subject to taxes originally imposed on the “rich.”
- In the high-rate scenario, revenues would rise by $3.4 trillion, federal outlays would rise by $5.7 trillion, and the federal deficit would rise by $2.3 trillion relative to CBO’s baseline without high inflation and interest rates.
Read the full CBO report here
Read the full letter from Senate Finance Republicans to the CBO here.