When it comes to looking at the big picture of the economy, I appreciate some of the writings by Terence Jeffrey. I was glad to see that the Drudge Report headlined his recent article on the U.S. national debt.
Jeffrey pointed out that the federal debt increased by over $1.2 trillion in fiscal year 2018. If anything he may have understated the numbers, and he certainly didn’t include the unfunded liabilities that will become the biggest drag on the economy.
This was the eighth year (of the last 11) that the government ran an annual deficit that exceeded the $1 trillion mark. Unsurprisingly, it was 2008 when everything started to go downhill. The major recession and financial crisis forced states and cities to tighten their belts, at least a little bit. The federal government went the other way, with spending exploding. The bailouts were bad enough, but the overall spending has remained elevated since then. We are supposedly in prosperous times, yet the federal government is running a deficit that is over $1 trillion. What will happen when the next crisis hits?
Where I really appreciate Jeffrey is that he breaks down this unfathomable amount into something that is understandable to the layman.
He states, “According to the Bureau of Labor Statistics, there were 155,542,000 people with jobs in the United States in August. That means that the $21,516,058,183,180.23 in federal debt at the end of fiscal 2018 equaled approximately $138,330 for every person in this country who works. The $1,271,158,167,126.72 increase in the debt in fiscal 2018 alone equaled approximately $8,172 per worker.”
Please understand that this is just the deficit. The figure of $8,172 is just the on-budget deficit for one year. This does not account for all of the other federal spending that was done through the collection of actual taxes. It also doesn’t account for all of the spending done at the state and local levels.
In fiscal year 2019, the federal government is projected to spend about $4.4 trillion. This comes out to about $28,288 per worker. Consider that some families have more than one worker. And again, this is just the federal government. It doesn’t account for state and local spending.
The Middle Class Pays a Lot
There is not an even distribution as far as taxation goes. It is impossible to figure out exactly how much each person is paying. The poor do pay some taxes, but they also receive state welfare benefits to a greater degree. In many cases, these things probably cancel each other out (without looking at the longer-term picture).
Some people will respond that government spending is not the proper measure and that we should look at individual taxation. But there are problems with looking at just taxation.
First, virtually all taxation is ultimately borne by the individual. You can call something a corporate tax or an employer tax, but it is eventually coming out of the pocket of some individual. This can come in many forms such as reduced shareholder values, higher consumer prices, and lower wages.
Second, government spending is a much more proper measure of overall taxation because it factors in debt and inflation. When the government spends $4.3 trillion in a year, it doesn’t matter if the government collected “only”, say, $3.1 trillion. It is still spending – or perhaps more accurately, consuming – $4.3 trillion in resources. The $4.3 trillion is using up real resources that are now unavailable to anyone else. At best, this spending is a misallocation of resources.
This is why overall government spending is the number one factor of why the American middle class is struggling so much, despite the supposedly strong economy.
If federal government spending were half of what it is now, then the average worker would have about $14,000 more to spend each and every year. Per family, the amount would be even more than that. What would you do with this extra money? That sure would go a long way towards helping pay the bills, saving for the future, helping the family, doing house repairs, etc.
There are certainly many causes for the high government spending. The Federal Reserve makes it possible for the federal government to run these huge deficits without interest rates spiking up. There is obviously a lot of lobbying and corruption going on in Washington DC. And ultimately, the American people are responsible for allowing this to happen and for being tricked into thinking there is such a thing as a free lunch.
In many ways, we live in great times. Our living standards are high, and the technology we are able to enjoy is incredible. But then on the other hand, many families are working a lot and still struggling to pay the bills. It doesn’t have to be this way.
The number one thing we need from an economic perspective is a drastic reduction in government, particularly when it comes to overall spending. We need for the federal government to stop consuming such vast amounts of resources. Until we see a significant reduction in government spending, the middle class is going to continue to have significant struggles.