Budget Deficit Explained

A wave of optimism is spreading across our nation, the economy is growing, new jobs have been created and wages are rising.

But there is an elephant in the room that no one is talking about – the increased level of our national debt.

The U.S. budget deficit for this fiscal year is projected to be $1 Trillion Dollars.  Congress will be spending approximately $4.4 trillion, and they only plan to collect $3.4 trillion in tax revenue.

Why You Should Be Concerned

In moderation, deficit spending promotes economic activity during recessions.  As individuals spend money, the economy gets stronger and other countries are willing to lend more money to the U.S. government.

However, deficit spending typically becomes an issue when the debt-to-GDP ratio approaches or exceeds 100 percent. That is where we sit today.  Owners of our debt may start to become concerned about our ability to pay them back.

How Did We Accumulate So Much National Debt?

There were four factors that led to the accumulation of $21 Trillion in National Debt:

First, the attacks on 9/11 led to the War on Terror. Congress voted to approve a huge increase in military spending. It rose from $437 billion in 2003 to a peak of $855 billion in 2011. The Trump administration is projected to set new records for military spending with $874 billion in 2018 and $886 billion in 2019.

Second, a $787 billion economic stimulus package was added to the 2009 deficit.  Congress agreed to cut taxes and extend unemployment benefits to help our nation recover.

Third, during the last recession there was a steep decline in federal revenue and taxes. As the economy tanked, so did tax revenues. Government income fell from its pre-recession record of $2.57 trillion in FY 2007 to $2.1 trillion in FY 2009. It didn't recover until FY 2013 when it reached $2.78 trillion. Revenue is projected to reach a new record of $3.4 trillion in FY 2019. That would have been enough to cover all government spending if we had just kept it at 2014 levels. 

Fourth, mandatory spending payments for Social Security and Medicare continue to increase as 10,000 more baby boomers retire each day. Mandatory spending for these benefits has exceeded $2 trillion a year since 2011. These payments consume almost two-thirds of the tax revenue collected each year. Only an Act of Congress that amends the Social Security or Medicare program benefits can change them.  That would require a majority vote in both houses and is unlikely to happen because it would take money out of the pockets of current beneficiaries.