Thomas P. McGrath

United States Annual Budget Deficits and Federal Debt

Overview: The U.S. Debt is $34 trillion and growing - changes to tax & spending policies are needed

On January 1, 2024, the total Federal Debt incurred by the United States government was about $34 trillion and growing rapidly. This Debt will unjustly burden future generations and jeopardize the long-term prosperity and security of our country. The U.S. Congress is not addressing this important issue. A recent Congressional Budget Office (CBO) analysis of the Federal Debt [1] concluded:

“to put debt on a sustainable path, lawmakers would need to significantly change tax and spending policies—increasing revenues more than under current law, reducing spending below projected amounts, or adopting some combination of those approaches. In all likelihood, the more time that passes before changes are made, the greater the burden those changes will place on future generations.”

Legislators will need to work to identify and mitigate government waste; vote for policies and legislation to increase revenues and reduce spending (spend less, spend smarter); and make difficult, sometimes politically unpopular decisions. Initial actions to increase revenues and reduce spending should include pursuing tax evaders (who avoid an estimated $1 trillion a year) and policies that synergize with efforts to reduce Healthcare Costs and mitigate Climate Change. The U.S. currently has low unemployment, steady economic growth, and inflation near target levels. Now is an appropriate time to begin addressing the Debt so the U.S. will be better positioned to deal with potential future economic disruptions.

The U.S. Federal Debt is projected to grow to over $150 trillion by 2053

The current Federal Debt is about $34 trillion ($100,000 per person) and is projected to grow over $150 trillion ($400,000 per person) by 2053. Primary drivers for the projected Debt growth are increasing Federal Debt Interest Payments and larger outlays for Social Security and Federal healthcare programs (e.g., Medicare, Medicaid).

The U.S. government has run annual Budget Deficits (government outlays/spending exceed revenues) for 46 of the past 50 years. At the end of fiscal year 2023 (ending September 30), the accumulated Federal Debt was over $33 trillion (T), equivalent to about 124% of Gross Domestic Product (GDP). Rapid Debt growth is projected for the next 30 years. Assuming that existing tax and spending laws and policies generally remain unchanged, the CBO projects an annual Budget Deficit of about $2.7T (6.8% of GDP) in 2033 leading to a Federal Debt over $150T (190% of GDP) by 2053.

Lower Mandatory and/or Defense spending will be needed to meaningful reduce Budget Deficits

The 2023 Budget Deficit was $1.7T. Only $0.7T of the spending was for Discretionary Non-Defense programs. Thus, reduced Mandatory and/or Discretionary Defense spending will be required to meaningfully reduce annual Budget Deficits.

About 89% of 2023 spending was Mandatory (e.g., for Social Security and government health programs) + Federal Debt Interest Payments + Discretionary Defense spending. The remaining 11% covers Discretionary Non-Defense including the agencies shown in the figure, other agencies (e.g., Environmental Protection Agency ($0.01T or 0.2% of total outlays)) and government operations (i.e., Executive, Legislative, and Judiciary branches).

A high and increasing Federal Debt will unjustly burden future generations

Anticipated burdens to future generations include:

- an increased share of Budgets paying for unproductive interest payments on the Debt: projected to be $1.4T/3.6% of GDP/15% of outlays (and 20% of revenues) in 2033 and $5.3T/6.7% of GDP/23% of outlays (and 35% of revenues) by 2053 [7],

- higher interest rates and borrowing costs,

- slow economic growth, greater risk of a financial crisis,

- fiscal constraints on policy makers, and

- other adverse impacts (e.g., loss of confidence in the U.S. dollar, greater inflation expectations). [3]

In simple terms, it is unreasonable to believe the U.S. government can continue to borrow huge sums of money without eventual harmful impacts.

A combination of higher revenues and lower spending is needed to reduce Federal Debt growth

Meaningful reductions to annual Budget Deficits and Federal Debt growth will require a combination of increased revenues and reduced spending starting with pursuing tax evaders and policies that synergize with efforts to reduce Healthcare Costs and mitigate Climate Change.

Initial actions to increase revenues and reduce spending should include pursuing tax evaders (who avoid an estimated $1T a year in tax payments [8]) and policies that synergize with efforts to reduce Healthcare Costs and mitigate Climate Change. The remaining budget gap would then be covered by a bipartisan combination of tax revenue increases and spending reductions.

Tax revenue increases through higher tax rates and lower tax credits and deductions should primarily impact wealthy households that have disproportionately benefited from Debt-increasing tax policy changes since 1980 [9 10].

Spending reductions need to include cuts to and/or restructuring of Mandatory spending programs and/or reductions in Discretionary non-Defense programs. Considering the current major conflicts (Ukraine, Gaza) and potential threats to peace (China, Iran, North Korea) across the globe, near term cuts to Discretionary Defense spending may not be warranted.

Legislators will need to make difficult, sometimes politically unpopular decisions

For the good of the country and future generations, there is a need for hard-working legislators willing to identify and mitigate government waste; vote for policies and legislation to increase revenues and reduce spending (spend less, spend smarter); and make difficult, sometimes politically unpopular decisions.

Implementing legislation, policies, and budgets to reduce annual Deficits and Debt growth and make the prosperity and well-being of future generations a priority will require the election of legislators willing to forgo business-as-usual and

work to identify and mitigate areas of government inefficiency, largess, and perverse incentives;

vote for policies and legislation to increase revenues and reduce spending to achieve a balanced, or at least a minimal deficit, budget. Making spending match revenues would force scrutiny of policies and programs and lead to less waste and a more productive and effective government (i.e., spend less, spend smarter); and

make difficult, sometimes politically unpopular decisions. It is easy to vote for more borrowing and spending and then tell voters you are giving them things. It is difficult to be a responsible legislator and explain to voters why increased revenues and reduced spending are good for the long-term fiscal health of the country.

These decisions will ultimately benefit current citizens in the form of more efficient government and lower future interest rate payments on the Federal Debt, thus providing more money for productive government spending. An article in The Economist regarding tax reform for rich countries noted

“Fundamental tax reform can boost growth and make societies fairer …. the principles according to which rich countries can design a good tax system are clear: taxes should target rents (e.g., excess returns in uncompetitive markets), preserve incentives (e.g., for investment), and be hard to avoid.” [11]

These would be good guiding principles for policies to reduce spending and increase revenues.

References

1. CBO Publication 56165: Federal Debt: A Primer, March 2020. www.cbo.gov/publication/56165

2. U.S. Treasury Historical Debt Outstanding. https://fiscaldata.treasury.gov/datasets/historical-debt-outstanding/historical-debt-outstanding

3. CBO Publication 59512: CBO’s Long-Term Projections of Gross Federal Debt, September 8, 2023. www.cbo.gov/publication/59512

4. CBO Publication 58848: The Budget and Economic Outlook: 2023 to 2033, February 2023. Data Supporting Figures. www.cbo.gov/publication/58848

5. CBO Publication 59640: Monthly Budget Review: Summary for Fiscal Year 2023, November 8, 2023. www.cbo.gov/publication/59640

6. CBO Publication 59097: An Analysis of the Discretionary Spending Proposals in the President’s 2024 Budget, Spending Projections Underlying the Report, by Budget Account, www.cbo.gov/publication/59097

7. CBO Publication 59014: The 2023 Long-Term Budget Outlook, June 2023. www.cbo.gov/publication/59014

8. “Tax cheats cost the U.S. $1 trillion per year, I.R.S. chief says.” New York times, October 13, 2021 www.nytimes.com/2021/04/13/business/irs-tax-gap.html

9. “The Legacy of the 2001 and 2003 “Bush” Tax Cuts”, Emily Horton, Center on Budget and Policy Priorities, October 23, 2017 www.cbpp.org/research/the-legacy-of-the-2001-and-2003-bush-tax-cuts

10. The Hamiliton Project “The coming fiscal cliff: A blueprint for tax reform in 2025”, Kimberly Clausing and Natasha Sarin, September 2023. www.brookings.edu/articles/the-coming-fiscal-cliff-a-blueprint-for-tax-reform-in-2025/

11. “Overhaul tax for the 21st century”, The Economist, August 9, 2018.

Tom McGrath
Independent Candidate
U.S. House of Representatives

California's 47th Congressional District

United States Annual Budget Deficits and Federal Debt

Overview: The U.S. Debt is $34 trillion and growing - changes to tax & spending policies are needed

The U.S. Federal Debt is projected to grow to over $150 trillion by 2053

Lower Mandatory and/or Defense spending will be needed to meaningful reduce Budget Deficits

A high and increasing Federal Debt will unjustly burden future generations

A combination of higher revenues and lower spending is needed to reduce Federal Debt growth

Legislators will need to make difficult, sometimes politically unpopular decisions

References

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Tom McGrath Independent CandidateU.S. House of Representatives

California's 47th Congressional District

United States Annual Budget Deficits and Federal Debt

Overview: The U.S. Debt is $34 trillion and growing - changes to tax & spending policies are needed

The U.S. Federal Debt is projected to grow to over $150 trillion by 2053

Lower Mandatory and/or Defense spending will be needed to meaningful reduce Budget Deficits

A high and increasing Federal Debt will unjustly burden future generations

A combination of higher revenues and lower spending is needed to reduce Federal Debt growth

Legislators will need to make difficult, sometimes politically unpopular decisions

References

DOWNLOADS

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Tom McGrath
Independent Candidate
U.S. House of Representatives