According to the National Debt Clock, our national debt is currently $36 trillion and counting. That’s because the government is currently spending more than $1.6 trillion than it receives from federal taxes. This is despite the fact that the annual deficit is currently $1 trillion less than when President Biden took office.
Of course, there are many who will say that the way to reduce the debt is to simply cut spending. Others will say that we need to raise taxes to increase revenue. But it’s not that simple. To understand why, you need to look at how we got here.
Since the end of World War II, we have endured two banking crises and 13 recessions. Many of those events resulted in the necessity of corporate bailouts, tax cuts, and increased spending to induce economic recovery. During that time, we have also fought in four costly wars, not including the estimated $26 trillion in today’s dollars spent on defense during the Cold War. More recently, the failed response to the Covid Pandemic resulted in the $1.9 trillion American Rescue Plan and the $1.2 trillion Inflation Recovery Act, which were necessary to stave off a second Great Depression and lower runaway inflation. Without those expenditures, we would have seen unemployment and inflation continue to skyrocket with many millions of Americans in soup lines and/or begging in the streets.
The point is, in a civilized society, there are certain events and economic conditions that require government to outspend its revenue.
Not the least of these are the climate-related disasters that annually cost billions of dollars to help victims and rebuild infrastructure. The National Centers for Environmental Information estimate that over the last five years those costs have totaled $764.9 billion! Do we turn our backs on the Americans ravaged by wildfires, droughts, hailstorms, tornados and hurricane victims to avoid budget deficits? Of course not.
And there are still more issues that have contributed to our debt, including self-inflicted problems such as trade wars, battles over the debt ceiling, and political shutdowns of the government which have cost many billions of dollars.
Taking all of this into consideration, you can see why, in modern times, our government has experienced a budget surplus only once. That was accomplished by the Clinton administration.
Now, you may say that I have overlooked one of the largest contributors to our annual deficits – the rising costs of “entitlements.” Certainly, it is true that Social Security, Medicare and Medicaid payments comprise about 61 percent of the annual federal budget. But before you call for cutbacks to these programs, consider this: In reality, these programs should be entirely separate from the federal budget. That’s because the retired workers who benefit from them have paid for them over a lifetime of work through FICA (the Federal Insurance Contributions Act).
That’s right, these programs are not “entitlements” at all. They are, in fact, insurance – nonprofit retirement insurance for which you pay premiums that are deducted from your paycheck.
Since the founding of the programs, the premiums collected have gone into a trust fund where the money is invested in federal securities. And because these programs are insurance, they should be treated like all other forms of insurance by following the principles of actuarial tables, which match premiums to expenditures. (When the costs of your casualty and accident auto insurance go up, so do your premiums.) Unfortunately, Congress has refused to consistently and equitably raise premiums, which has placed the programs in some degree of jeopardy.
That leads us to the politics of deficits and debt.
Since the Citizens United v FEC decision of 2010, political campaigns are funded in large part by billionaires, lobbying groups, and large corporations. Of course, these groups all expect a return on their investments. For example, despite the impact on our climate caused by the burning of fossil fuels, the fossil fuel industry received more than $1 trillion in subsidies in 2023. Many others have similarly cashed in. And all of these paybacks contribute to the deficit.
Further, politicians love to promise tax cuts even when they know those tax cuts will lead to larger deficits. Perhaps that’s why the highest federal income tax rate has been cut from 91 percent in 1950 to 40.8 percent today. Indeed, we have seen at least five major tax cuts since WWII. And since many of those same politicians like to campaign on a platform of fear – fear of immigrants, fear of other religions, fear of terrorism, and fear of other nations – they routinely vote to increase our defense budget.
The requested Pentagon budget for 2025 is nearly $850 billion dollars. That’s more than the next nine countries combined! And, if you separate Social Security, Medicare, and Medicaid from the annual budget as is justified, it represents roughly 34 percent of the remaining (discretionary) budget. Add another $103.2 billion for Homeland Security, plus $303.8 billion for Veterans Affairs, and you’ll see that we’re spending an incredible amount for defense and the consequences of war – an annual total of more than $1.2 trillion that is nearly equal to our deficit.
And that doesn’t even include the $21 trillion in previous spending that the Pentagon couldn’t account for in a recent audit.
So, where do you cut? How do you raise more revenue? If you’re serious about reducing the debt, you absolutely have to do both. But if you do too much of either, you risk damaging the economy which will further add to the debt.
The planned tax cuts, inflation-inducing tariffs, and mass deportations of undocumented workers certainly isn’t the answer.
