Many people, including rationally ignorant voters, ignore the poor state of America’s public finances. The table below shows some figures, taken from the latest budget of the US government. Politicians should be aware of the problem, but their self-interest is to stifle the future and compete for the benefits of power by promising voters new programs, transfers and tax cuts (see James Buchanan and Richard’s book Wagner from 1977). Democracy with a deficit: the political legacy of Lord Keynes).
If Congress’s appropriations follow the March 2024 budget, expenditures for fiscal year 2025 (October 1, 2024 to September 30, 2025) will reach $7.3 trillion, compared to expected receipts (revenues) of 5, 5 trillion dollars. A deficit of $1.8 trillion will result. Next year the federal deficit will therefore be equal to 25% of expenditure and 32% of receipts (the figures in red in my table).
This level of annual deficit has become very normal. Federal spending reached $1 trillion in 2019, peaked at $3.1 trillion in 2020, and fell to an average of $1.9 trillion between 2021 and 2024 after the epidemic.
The problem is not caused by annual emergencies or enthusiasm, nor by arbitrary “government waste.” Sixty percent of federal spending is called off obligedfor it consists of major programs mandated by existing laws and regulations and not subject to annual appropriations by Congress. The mandatory programs are essentially Social Security, Medicare, and Medicaid. The “other” category primarily includes income security programs such as unemployment benefits, nutritional assistance programs, or Supplemental Security Income.
The portion of federal spending called discretionary (27% of expenditures) includes $900 billion for defense plus annual appropriations by Congress for all other purposes.
To these two broad spending categories must be added nearly $1 trillion (13% of spending) in interest payments on the national debt. Interest payments decrease as interest rates fall, but increase as debt increases.
If we add to the mandatory programs defense expenditures and interest on the national debt, which are also not easily or easily compressible, we get 86% of the total expenditures. In this sense, then, only 14% of federal spending is compressible or “discretionary.” Eliminating the annual deficit without raising taxes would require the elimination of all this “discretionary” spending, plus an 11% cut in “non-compressible” spending (mandatory programs, defense, and interest on the national debt).
Since 1961 the historical budget tables of the OMB (see Table 1.1) show a surplus in just five years: 1969 and 1998 to 2001. The problem, of course, does not depend on which political party is in power. Chronic deficits explain why the federal debt is projected to reach $30 trillion by the end of fiscal year 2025, more than double the $14.2 trillion at the end of President Barack Obama’s second term (see Table 7.1).
The national debt is a time bomb that must be defused or will explode at some point. If major tax increases or defaults on the national debt are to be avoided, a fundamental reassessment of the functions and scope of the federal government will be necessary.
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The government is sinking into debt