The Biden administration has proposed a budget for fiscal year 2022 (October 1, 2021 through September 30, 2022) that would have the federal government spending $6 trillion.
Some just shrug their shoulders. Some are outraged at the amount. You could probably tell people that the proposal is for $5 trillion or $7 trillion and you would get about the same reaction. I don’t think most people would be able to tell you how much the government is spending annually within half a trillion dollars. Some people might not even know it is in the trillions. And for those who do understand, it is still hard to comprehend.
If you have one million dollars, you would have to multiply that by one million in order to get a trillion. So if you take one million rich Americans and order them to pay one million dollars each in one year, it won’t even cover 20% of the federal budget.
It is surprisingly difficult to find good sources that give a good overhead view of the federal budget. Here is one website that gives a good summary of the receipts and outlays going back to 1930. The receipts are the tax collections. The outlays column represents the spending. The difference is the surplus or deficit.
Of course, it is mostly deficits. The numbers don’t take into account the unfunded liabilities. Much of the surpluses of the latter Bill Clinton years came from Social Security taxes paid, where the amount the government paid out to Social Security recipients was less than what was collected. What should have been going into the Social Security Trust Fund was really being used to show a surplus. Still, the years of a Clinton presidency with a Republican Congress look like a dream compared to the mess we’re in now.
The numbers are shown in billions of dollars. If you look at the outlays for fiscal year 2020, it shows 6,550.4. This means approximately $6.55 trillion was spent for fiscal year 2020. The tax collections were $3.421 trillion, which resulted in a deficit of over $3.1 trillion. The estimates for 2021 get even worse.
The chart shows estimates going forward to 2026. These are unreliable, but still telling. I don’t know why they would expect to have receipts of $5.3 trillion in 2026. Maybe we will if we have massive inflation. These predictions are based on an assumption that there will be no recession, which is a pretty big assumption.
One thing that is certain is that we will continue to see massive annual deficits. This is the amount added to the national debt every year. All of the assumptions show deficits of at least $1.3 trillion over the next 5 years. This is largely being funded by the Federal Reserve buying U.S. government debt.
Unsustainable
Herbert Stein said that if something cannot go on forever, it will stop. It sounds like it should be a Yogi Berra quote. Sometimes things have to be stated simply to bring us back to reality.
It is surprising how long the federal government has gotten away with these massive deficits. The consumer price inflation numbers are coming in higher these days, so it’s possible that this could be the start of the end of this madness.
One thing for sure is that the Congress and president are not going to voluntarily reduce the budget. I am not counting the ridiculous outlays from 2020 and 2021 with stimulus checks, bailouts, and unemployment checks.
This is the ratchet effect. The outlays in fiscal year 2019 were $4.447 trillion. This was already absurdly high. After exploding for 2020 and 2021, the government will ratchet it back a little. But if spending is at $6 trillion for 2022, that will be an increase of more than $1.5 trillion from the already bloated budget of 2019.
This cannot go on. It technically can continue numerically, but there are going to be great consequences. There already are great consequences.
When there is a massive deficit, we hear that we are burdening our grandchildren and future generations. This isn’t untrue. But more importantly, which isn’t typically said, is that we are burdening ourselves now. This is all a misallocation of resources. If the government is spending money (whether through taxes or debt or inflation), then that is money that is not available for saving, spending, and investing by companies and individuals.
It is impossible to know how this will all play out, but it is going to be painful. If we hit a 1970s scenario where there is double-digit price inflation, what will the Fed do? It isn’t as easy now to get someone like Paul Volcker in as Fed chair to stop the money creation and allow interest rates to rise. It’s certainly possible, but America has become addicted to spending and debt.
Can you imagine if price inflation and interest rates hit double digits? Can you imagine that Congress is forced to cut back its spending to just 5 years ago at about $4 trillion? There would be a lot of people who are dependent on government taking a haircut. There would be a lot of special interests upset. There would be major cuts in both welfare and warfare programs across the board. It can’t happen soon enough for me.