The federal government’s budget is in such disarray that balancing the books would require a 30% spending cut or a 40% increase in taxes, a recent study found.
The budget deficit, which reflects the difference between federal revenues and expenditures in a year, approached $1.4 trillion in 2022, according to data from the Office of Management and Budget. The national debt is currently nearing $31.5 trillion even as maintenance costs soar due to a higher interest rate environment. An analysis from economists at the University of Pennsylvania’s Wharton School found that American fiscal policy is in “permanent imbalance as current debt plus projected future spending outstrips future tax revenue,” demanding a substantial decrease in expenditures or a substantial rise in revenues.
“Just like all individuals and businesses, the federal government is subject to a budget constraint: it must fund all expenditures, current and future, from its tax and non-tax receipts over time,” the analysis said. “By construction, the fiscal imbalance must be zero for a fiscal policy to be sustainable without future changes.”
The economists forecasted that the fiscal imbalance would equal 7% of the present value of all future gross domestic product over the next 75 years. Restoring order to the federal budget would require across-the-board cuts to programs such as Social Security, Medicare, and Medicaid, across-the-board increases to payroll taxes, individual taxes, and business taxes, or some combination of tax hikes and spending cuts.
The future measures of federal indebtedness were made using the Generally Accepted Accounting Principles established by the Financial Accounting Standards Board, under which companies must report the “present value of shortfalls in their long-term obligations.” Combining current debts with the present value of projected future shortfalls over the next 75 years implies $93.8 trillion of fiscal imbalance.
Republican and Democratic administrations have overseen surges in the national debt over the past several decades. Although President Barack Obama maintained budget deficits as large as $1.4 trillion during his first term, President Donald Trump ran a deficit nearing $1 trillion in 2019, the year before the deficit more than tripled to $3.1 trillion as a result of stimulus spending. Packages greenlit by President Joe Biden will contribute more than $4.8 trillion in new deficit spending between 2021 and 2031, according to an analysis from the Committee for a Responsible Federal Budget, while removing the effect of the American Rescue Plan, a stimulus package approved soon after President Biden’s inauguration, implies $2.5 trillion of new deficits.
Biden has contended that the supposed tapering of the deficit under his administration justifies further spending, neglecting to mention that the spending surges over the past three years are attributable to stimulus measures passed during the lockdown-induced recession.
“On my watch, things have been different. The deficit has come down both years that I’ve been in office,” Biden commented. “And I just signed legislation that’s going to reduce it even more in the decades to come. Now Republicans in Congress are doubling down on their commitment to explode the deficit again. Just this week, Republican leaders said if they get their way, they’re going to extend the Trump tax cuts, which are due to expire in a couple years.”