Many people, including uninformed voters, ignore the dire financial situation of the US government. The table below provides some numbers, extracted from the last US government budget. Politicians should be aware of the problem, but their interest is to kick the future into the ground and compete for power gains by promising voters new programs, transfers, and tax cuts (see James Buchanan and Richard Wagner’s 1977 book. Democracy in Deficit: The Political Legacy of Lord Keynes).
If Congressional appropriations follow the March 2024 budget, expenditures (expenditures) for FY 2025 (October 1, 2024 to September 30, 2025) will reach $7.3 trillion compared to projected receipts (income) of $5.5 trillion. It will result in a deficit of $1.8 billion. Next year, the government deficit is set to equal 25% of expenditures and 32% of receipts (figures are in red in my Table).
This level of annual deficit is quite normal. Government spending reached $1 trillion in 2019, reached $3.1 trillion in 2020 and, after the pandemic, dropped to $1.9 trillion from 2021 to 2024.
The problem is not caused by annual emergencies or enthusiasm, or random “government waste”. Sixty percent of government spending is called mandatorybecause it is made up of large programs authorized by standing laws and regulations and not subject to the annual appropriations of Congress. The mandatory programs are Social Security, Medicare, and Medicaid. The “other” category includes mainly income security programs such as unemployment compensation, nutritional assistance programs, or Supplemental Security Income.
Part of the government funds called by choice (27% of spending) includes $900 billion for defense and Congress’s annual budget for all other purposes.
To these two broad categories of spending must be added about $1 trillion (13% of expenditures) to pay interest on the national debt. Interest payments decrease when interest rates decrease, but increase with increasing debt levels.
Adding to the mandatory programs the cost of protection and interest on the government debt, which is not easy or easily stressed, we get 86% of the total amount. Therefore, only 14% of federal spending is discretionary or “discretionary” in this sense. Eliminating the annual deficit without raising taxes would require eliminating all of these “discretionary” expenditures and an 11% reduction in “non-reducible” expenditures (mandatory programs, defense, and interest on the government debt).
Since 1961, OMB’s historical budget tables (see Table 1.1) show surpluses in only five years: 1969, and 1998 to 2001. The problem is clearly not a function of which political party is in power. Chronic deficits explain why the federal debt is projected to reach $30 trillion by the end of (calendar year) 2025, more than double the $14.2 trillion at the end of President Barack Obama’s second term (see Table 7.1).
Public debt is a ticking time bomb that will have to be dealt with or it will explode at some point. If a major increase in taxes or a public debt default is to be avoided, a fundamental reassessment of the federal government’s functions and scope will be required.
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The government is drowning in debt
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