CBO Director Says High Interest Rates Restrict Federal Policymaking, Stifle Private Sector

WASHINGTON – Senate Budget Committee Ranking Member Chuck Grassley (R-Iowa) today questioned Congressional Budget Office (CBO) Director Phillip Swagel about the dangers of Democrats’ tax proposals, high interest rates and the Biden administration’s regulatory agenda.


Grassley’s questions, including notable excerpts, follow.

Current Interest Levels:

Grassley: “Recently, the Wall Street Journal published an essay discussing historical examples of fiscal mismanagement contributing to the downfall of once-great powers. Historian Niall Ferguson noted how the general rule of history has been that ‘Any great power that spends more on debt service than on defense will not stay great for very long.’

“According to CBO, we just crossed this fiscal Rubicon. The U.S. will spend more on interest than on defense this year and every year onward. In your view, do rising debt service costs pose a threat to economic stability? And what historical lessons can inform our current fiscal situation?”

Swagel: “Yes, they do. In a sense, that’s, the near-term fiscal risk, is the rising interest payments. It’s both higher interest rates and more debt leading to those higher interest payments, and that affects all the other choices U.S. policymakers want. 

“If you want more spending on something or tax relief on something, the rising interest payments crowd that out and then have effects on the private economy: there’s fewer resources available for the private sector, less private investment, job creation and so on.”

Irresponsible Executive Actions:

Grassley: "The Constitution gives Congress the power of the purse. But the current administration has used rules, regulations and other executive actions to make major policy changes with unprecedented consequences for the federal budget – all without a single vote in Congress. How have executive actions changed CBO’s budgetary projections since the agency’s February 2021 baseline?"

Swagel cited the Biden administration’s student loan bailouts and tailpipe emissions rule – executive actions Grassley has sought to overturn – as contributors to the deficit. 

Grassley’s Additional Questions:

  • Has CBO analyzed any legislation and determined it would put the debt on a sustainable course just by increasing taxes on those in the top one percent?
  • If you were to stabilize the debt solely by increasing the tax rate on incomes above $400,000, how high would the rate have to be?
  • Wouldn’t the tax rate required have significant behavioral effects and serious negative consequences for the economy?