With economies shut down and the U.S. government spending trillions in response to the coronavirus pandemic, the federal government ran a record $3.13 trillion deficit in fiscal 2020. The pandemic eased and economies opened back up in fiscal 2021, and you would expect that deficit to narrow.
In fact, it did — slightly.
In 2021, the federal government ran a $2.77 trillion deficit. But despite falling shy of the deficit record, Uncle Sam spent even more money in 2021 than it did during the depths of the 2020 coronavirus recession and set a new spending record. Federal spending was up 4.2 percent in fiscal 2021. The feds blew through $6.82 trillion over the last 12 months, compared with $6.55 trillion in fiscal 2020.
The only thing that saved the feds from setting a new deficit record in the last fiscal year was an increase in tax revenue thanks to a moderately improved economy. Government receipts were up 14.4 percent in the last fiscal year, coming in at $4.05 trillion. That compares with $3.42 trillion in revenue the previous year.
Politicians and pundits will blame the massive deficits on the pandemic or claim we just need to raise taxes. But the real problem is the federal government has an uncontrolled spending problem. And this problem was evident even before COVID reared its ugly head.
In fiscal 2019, the Trump administration ran a $984 billion deficit. At the time, it was the fifth-largest deficit in history. This goes to show that the federal government had a major spending problem before the pandemic. In fact, through the first two months of fiscal 2020, the deficit was already 12 percent over 2019’s huge Obama-like number and was on track to eclipse $1 trillion. Prior to 2020, the U.S. government had only run deficits over $1 trillion four times, all during the Great Recession. We were approaching that number prior to the pandemic, despite what Trump kept calling “the greatest economy in the history of America.”
Even without additional stimulus in the coming year, spending doesn’t appear set to slow much. Congress continues to debate a massive infrastructure bill, and Biden’s 2022 budget tops out at over $3.5 trillion in spending. The Biden budget would take the U.S .to its highest sustained spending levels since World War II. And the Democrats will almost certainly find new spending needs in the coming year.
Keep in mind, a constitutional government could never run deficits like this. Virtually all of this government spending is unauthorized by the Constitution.
As of October 28, the national debt stood at $28.91 trillion. For additional perspective, consider this: every American citizen would have to write a check for $86,821 in order to pay off the national debt.
The U.S. government added some $450 billion to the debt over the last couple of weeks after Congress passed a bill increasing the federal debt ceiling by $480 billion. The government can limp along with the current ceiling in place temporarily using “extraordinary measures.” Uncle Sam will run out of money in early December.
Congress will almost certainly run the debt ceiling saga to the brink, but it will undoubtedly raise the spending limit. When it does, the Treasury Department will go on another massive borrowing binge. Deficits drive debt.
According to the National Debt Clock, the debt to GDP ratio is 126.04 percent. Despite the lack of concern in the mainstream, debt has consequences. More government debt means less economic growth. Studies have shown that a debt to GDP ratio of over 90 percent retards economic growth by about 30 percent. This throws cold water on the conventional “spend now, worry about the debt later” mantra, along with the frequent claim that “we can grow ourselves out of the debt” now popular on both sides of the aisle in D.C.
According to a CBO report, on the current trajectory, the size of the national debt will be nearly double the size of the U.S. economy by 2050.
It’s easy to simply shrug off the debt. People have been warning about it for years. But it’s not a problem until it is. Debt is neither free nor is it irrelevant.
At some point, somebody has to pay for all this. As the saying goes – there’s no such thing as a free lunch. We are all on the hook for the massive bill. We (and our children and grandchildren) will pay for this down the road – either through higher taxes or higher inflation – most likely both. In fact, American consumers are already paying for all the stimulus money the feds showered on them in 2020 and early 2021 with higher prices driven by inflationary pressures caused by a historic increase in the money supply. The prices will only get higher as the federal government continues its unrestrained spending spree.
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