The burgeoning deficit is not a revenue problem but a spending problem.
Americans are becoming a nation of debt slaves.
T he Treasury Department released its monthly statement for August, and alarm bells should be ringing in Washington. Federal finance is quickly spiraling out of control, with interest payments on the debt now exceeding $1 trillion each year and growing. Kicking the deficit-spending can down the road is not something we can do for long. Runaway government spending is already turning us into a nation of debt slaves.
Not only is this the first fiscal year when interest on the federal debt eclipsed the $1 trillion threshold, but there’s still another whole month to go before the fiscal year ends. The deficit for the fiscal year to date of $1.9 trillion already exceeds the Treasury’s original estimate. To put that in perspective, on average, the federal government is spending $5.7 billion more per day than it brings in, and $3 billion of that amount is going just to pay interests on the debt, limiting the funds available for other priorities.
Politicians on the left, such as Vice President Kamala Harris, are telling the nation that this ballooning deficit is because of a revenue shortfall and therefore we need to raise tax rates in hopes of increasing tax revenue. But data published by the Biden-Harris administration’s own Treasury Department contradict this claim.
In 2021, boosted by the Tax Cuts and Jobs Act, federal tax revenue exceeded $4 trillion for the first time ever and has hit that mark for each year of the Biden-Harris administration. In fact, CBO forecasts that 2024 will come in at nearly $5 trillion. Revenue has already increased to $4.4 trillion in the first eleven months of this fiscal year, up from $4.0 trillion in the same period last fiscal year. The problem is on the other side of the ledger: profligate government spending.
Over the last two fiscal years, total outlays for the first eleven months increased from $5.5 trillion in 2023 to $6.3 trillion in 2024. So, while revenue increased by $400 billion over the past two years, spending increased by $800 billion. And that’s without a war, recession, or pandemic that could justify such spending. September’s deficit will only add to the total. Clearly, the burgeoning deficit is not a revenue problem but a spending problem.
And that problem is getting worse. This was the largest total deficit of any August in the history of the country, including the blowout spending years of 2020 and 2021, when Congress was passing all kinds of pork-laden legislation under the guise of responding to a pandemic. The budget shortfall for August was also larger than any other monthly deficit in the current or last fiscal years.
Running multitrillion-dollar annual deficits has now pushed the federal debt over $35.3 trillion, and the Treasury Department estimates that it will breach $36 trillion before the end of the calendar year. The government is adding roughly $1 trillion of debt every 100 days or so.
The deadly combination of an exploding debt and higher interest rates has fueled the skyrocketing cost of servicing the debt, expected to hit $1.2 trillion by the end of this fiscal year. For context, this is about half of all personal income taxes.
That is an astonishing — and terrifying — fact, and it means that Americans are becoming a nation of debt slaves. Look at your most recent paycheck and see how much you paid in federal income tax, then realize that half of that effectively went to pay nothing but interest. It didn’t go to roads and bridges, it didn’t fund hospitals or schools, it didn’t pay for the military or Social Security — just interest. The Federal Reserve’s lowering interest rates will help, but it won’t solve the government’s spending problem.
If a business ran itself this way, it would go bankrupt in a hurry, but the government has another option: It can create money to pay its bills. For the last four years, the Federal Reserve has effectively been counterfeiting for Congress, covering the Treasury’s deficits with money created out of nothing; that’s what gave America 40-year-high inflation.
If big-government politicians continue running multitrillion-dollar annual deficits, inflation will persist as well. That means more Americans will fall behind, and the middle class will continue shrinking. It also means that the deficit and debt will spiral out of control as annual interest payments hit stratospheric levels.
As the nation continues crossing terrible financial thresholds, such as spending $1 trillion just to finance the federal debt, it’s clear that America is running out of time — and the politicians need to wake up.
Andy Puzder, chief executive officer of CKE Restaurants for more than 16 years, is a senior fellow at the America First Policy Institute and the Pepperdine University School of Public Policy. E. J. Antoni is a public-finance economist. Both are fellows at the Heritage Foundation.