What Should Be Done About Huge U.S. Government Budget Deficits?

Households, businesses, and even U.S. state governments face budget balancing requirements that the federal government does not.

If individuals, businesses, or states spend more than than they take in in revenue, they run into huge problems quickly. With the federal government, it takes longer for major problems to occur. But even the United States federal government faces major upcoming problems due to its huge and growing federal debt.

Below are photos of some economics textbooks. But it's not necessary to read an economic text to realize that a basic budgeting principle is that a budget should balance. Expenditures ought not exceed outlays. 

    

Since I originally published this article on February 1, 2020, the United States government's national debt has continued to increase. The United States has an official maximum debt limit, but it is increased periodically as the national debt grows to the limit.   As of today, May 16, 2023, efforts are underway to raise the national debt limit again.

Yesterday, May 15, 2023, Secretary of the Treasury Janet Yellen sent a letter to Congressional leaders [1] estimating that the U.S. Treasury couldn't meet all obligations if the debt limit wasn't raised "by early June, and potentially as early as June 1, 2023."

The federal government's fiscal year runs from October of one year through September of the following year, thus fiscal 2023 ends in September 2023. After a horrendous $3.13 trillion 2020 fiscal year federal budget deficit due largely to COVID-19 and costs related directly and indirectly to it, the deficit dropped in 2021 to $2.77 trillion, and again in 2022 to $1.38 trillion, according to U.S. Treasury data.[2] But the Treasury's data indicates that for the current fiscal year of 2023 the deficit is expected to increase dramatically, with the seven month October 2022-April 2023 deficit of $925 billion being $565 billion more than the $360 billion deficit for the corresponding months of fiscal 2022.

As of May 12, 2023 the Congressional Budget Office forecasts[3] a $1.5 trillion deficit for fiscal 2023. In a May 2023 update the Congressional Budget Office estimates [4] that the deficit will rise to $2.703 trillion for fiscal year 2033.

Various factors can alter things. When I originally wrote this article in 2020, the fiscal 2020 deficit was expected to top one trillion dollars and in the future even larger ones were expected according to the Congressional Budget Office’s[5] outlook for 2020-2030. Due to COVID-19 that 2020 deficit was actually over $3 trillion, as mentioned over.

Even worse, the same Congressional Budget Office in that 2020 document in its 30 year outlook stated that “By 2050, debt is projected to reach 180 percent of gross domestic product (GDP), far higher than any percentage previously recorded in the United States and on track to grow even larger.”

The problem is not lack of revenue. The CBO document states that federal revenues will increase “from 16.3 percent of GDP in 2019 to 18.6 percent in 2050. However, spending would increase even more, rising from 21.0 percent of GDP in 2019 to 30.4 percent in 2050—driven by increases of 4.8 percentage points in mandatory spending and 5.4 percentage points in net outlays for interest. Increases in mandatory spending would result from the aging of the population and growth in per capita spending on health care. Higher interest costs would stem from increases in federal borrowing and rising interest rates.”

The CBO forecast is based on assumptions which are subject to change as time goes on. But it is well known that our population is aging, people are living more years after retirement, and health care costs are rising. Therefore, unless major increases in revenue occur, we need to make changes.

During the three years from 2020 to 2023, the national debt has continued increasing. Expected increases in expenditures on Social Security, Medicare, and Medicaid are likely to put bigger strains on the budget in upcoming decades.

Below I discuss some things we can do to reduce the U.S. government's projected future annual budget deficits.

Better Preventive Health Care and Working Longer Due to Enjoying Careers

It would help if we took better preventive care of our health to reduce health care costs. The majority of our health problems are preventable as I discussed in a 2020 post on the now-defunct website Craft News Report.[6] If health care costs are less, Medicare and Medicaid expenditures will be lower.

Furthermore, if persons remain healthy and enjoy their careers, they may choose to work more years. Thus, they will be drawing retirement benefits fewer years and paying taxes into the retirement system more years. Many persons might choose to never retire. Even now, there are lots of folks in their 60s, 70s, and older who choose to keep working because they like their jobs.

Reduce Military Spending

Another factor leading to huge budget deficits is military spending. Large amounts are spent on military weaponry, personnel, etc.

The war in Ukraine is a current example. The United States has provided and/or committed to provide Ukraine billions of dollars of military aid since the war began, $37.6 billion according to a CNN article[7] updated on May 9, 2023. In my opinion, this war like all or almost all others was preventable.  

According to the Brown University Costs of War Project[8] “Since late 2001, the United States has appropriated and is obligated to spend an estimated $6.4 Trillion through Fiscal Year 2020 in budgetary costs related to and caused by the post-9/11 wars—an estimated $5.4 Trillion in appropriations in current dollars and an additional minimum of $1 Trillion for US obligations to care for the veterans of these wars through the next several decades.”

In September 2021 Brown University [9] estimated the costs of post 9/11 U.S. war spending as over $8 trillion dollars through fiscal year 2022, including projected future spending on "veterans care over the next 30 years."

From my perspective much of this spending has been counterproductive, leading more persons to become terrorists rather than reducing terrorism. Let’s cut military spending and reduce international military activity.

Does U.S. Government Tax Revenue Need to Increase?

The 2017 Tax Cuts and Jobs Act produced tax cuts that led to less government revenue than would otherwise have occurred in 2018 according to the Tax Policy Center.[10] A Wall Street Journal article[11] is one of many noting that U.S. government tax revenue declined in 2018 compared to 2017.

That data is for the calendar year, but the United States government’s fiscal year runs from October 1 to September 30. By fiscal year calculations, federal government tax revenue went up slightly in 2018 and bigger increases were estimated for 2019 and expected for 2020 according to data on TheBalance.[12]

In the years since 2020, tax revenue has increased. Record revenue is expected for fiscal year 2023.

Still, it's possible that more tax revenue may be needed. But the greater problem is that spending is increasing too fast. Indeed, the CBO projections are for tax revenue to increase in upcoming years, but not as fast as spending increases.

The Treasury Department reports[13] that U.S. government revenue for the first seven months of fiscal year 2023 (October 2022-April 2023) was $2.69 trillion, but the government has spent $3.61 trillion, thus leading to a huge deficit.

U.S. Congress Can Cut Wasteful Spending

Each annual federal budget that is passed by the United States Congress and signed into law by the President contains wasteful spending that could be cut out of the budget.

Both Democrats and Republicans insert into the budget and vote for pork-barrel projects that needlessly spend taxpayers' money. This needs to cease or at least be dramatically reduced.

Below is a June 22, 2017, photo of the Capitol Building in Washington, DC, where the U.S. Congress meets.

Reducing Interest Costs

Interest on the national debt is a big expense. Taking action to reduce the annual budget deficits will reduce the annual expenditures on interest on the debt.

Summary and Conclusion

As I discussed earlier in this piece, we can dramatically reduce projected government spending and budget deficits by:

·         Better preventive care cutting health care costs

·         Persons choosing to work more years due to better health and enjoying their careers

·         Reducing unnecessary military spending

·         Reducing annual interest costs on the debt by lowering deficits

The sooner we make changes the less drastic that the changes need to be.

Unfortunately, often it seems Republicans want to increase military spending and cut taxes, while Democrats want to increase spending on benefits programs. The two parties often seem to “compromise” by increasing spending on both the military and benefits programs while cutting taxes.

Getting political leaders to make tough cuts is unlikely. But we citizens can and should take actions to take better care of our health, find and work at jobs we enjoy, and pressure our leaders to reduce unnecessary spending on the military and other things.

Our futures and those of future generations will be affected by what actions we take now. Let’s seek to take the correct ones.

ENDNOTES:  

[1] Yellen, Janet; "Debt Limit Letter to Congress Leaders"; May 15, 2023; webpage accessed May 16, 2023; https://home.treasury.gov/system/files/136/Debt-Limit-Letter-to-Congress-Members_20230515_McCarthy.pdf

[2] "What Is the national deficit?"; Treasury.gov; webpage accessed May 16, 2023; https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/#us-deficit-by-year

[3] "Budget"; Congressional Budget Office; webpage accessed May 16, 2023; https://www.cbo.gov/topics/budget#:~:text=View%20CBO's%20budget%20infographics%20to,over%20the%20past%20few%20decades.&text=In%20CBO's%20projections%2C%20the%20federal,year%20from%202024%20to%202033.

[4] "An Update to the Budget Outlook: 2023-2033": May 2023; Congressional Budget Office; webpage accessed May 16, 2023; https://www.cbo.gov/system/files/2023-05/59096-Budget-Outlook.pdf

[5] “The Budget and Economic Outlook:2020-2030”; Congressional Budget Office; January 2020; webpage accessed February 1, 2020; https://www.cbo.gov/publication/56073

[6] James Edwin Gibson; “True Health Care Reform: Better Preventive Care”; Craft News Report; March 30, 2019; webpage accessed February 1, 2020; https://craftnewsreport.com/the-answer-to-health-care [The CraftNewsReport website has since closed down.

[7] Oren Liebermann and Haley Britzky; "U.S. announces $1.2 billion aid package to Ukraine with counteroffensive looming; CNN; updated 10:49 a.m. ET, May 9, 2023; webpage accessed May 16, 2023; https://www.cnn.com/2023/05/08/politics/ukraine-aid-package-counteroffensive/index.html

[8] Neta C. Crawford; “United States Budgetary Costs and Obligations of Post-9/11 Wars Through FY2020: $6.4 Trillion”; Brown University; November 13, 2019; webpage accessed February 1, 2020; https://watson.brown.edu/costsofwar/files/cow/imce/papers/2019/US%20Budgetary%20Costs%20of%20Wars%20November%202019.pdf

[9] "Costs of War; Estimate of U.S. Post-9/11 War Spending in $ Billions FY2001-FY2022"; Brown University; posted on September 1, 2021; webpage accessed May 16, 2023; https://watson.brown.edu/costsofwar/figures/2021/BudgetaryCosts

[10] William G. Gale and Aaron Krupkin; “Did the Tax Cuts and Jobs Act Pay for Itself in 2018?”; TaxPolicyCenter.org; March 13, 2019; webpage accessed February 1, 2020; https://www.taxpolicycenter.org/taxvox/did-tax-cuts-and-jobs-act-pay-itself-2018

[11 Kate Davidson; “U.S. Tax Revenues Fall, Deficit Widens in Wake of New Tax Law”; updated February 13, 2019; webpage accessed February 1, 2020; https://www.wsj.com/articles/u-s-tax-revenue-declined-0-4-in-2018-11550084426

[12] Kimberly Amadeo; “US Government Tax Revenue”; TheBalance.com; updated January 21, 2020; webpage accessed February 1, 2020; https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762

[13] "How much revenue has the U.S. government collected this year?"; Treasury.gov; webpage accessed May 16, 2023; https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/

NOTE:

This article was originally submitted to Google Blogger on February 1, 2020 and was virtually identical to one submitted earlier the same day to Craft News Report, a website operated by the author’s friend Paul Craft.

This article was revised and updated on May 16, 2023.   

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