When you make your family budget, you don’t normally factor in spending that you won’t be able to fund. If you do, that means taking on debt, and eventually, that option closes to you. So why are America’s elected officials promising to spend more than the country can afford for the next few decades? At the Cato Institute, Adam N. Michel explains that America’s “fiscal trajectory is unsustainable.” He writes:
Looking only at current taxes obscures the fact that the US federal government has run a budget deficit every year since the early 2000s, financing higher spending levels through government debt. Figure 5 shows that spending on interest and other mandatory programs (such as Social Security and health entitlements) will temporarily surpass revenue raised next year, according to the Congressional Budget Office’s (CBO) recent budget outlook. This leaves Congress to finance all other spending with additional debt.
Under current law, the CBO projects interest and mandatory spending will permanently surpass revenues by 2031. If Congress keeps taxes from rising automatically in 2026 when the 2017 tax cuts expire, revenues will permanently fall short of covering mandatory and interest spending, beginning next year.
The current US fiscal trajectory is unsustainable. Eventually, taxes will need to rise, or spending will need to fall. Large, European‐style welfare states cannot be sustainably financed when a small sliver of income earners pay the lion’s share of taxes—big government requires high taxes on the middle class.
Instead of raising taxes, Congress should reduce spending to maintain America’s beneficial outlier status as a country where the government confiscates 15 percent less of your paycheck. However, if the American people continue to demand high levels of government spending, politicians should be clear: big government means higher taxes and slower economic growth for all Americans.
Action Line: How long will lenders continue to support America’s spending? When will the debt option close to America? Click here to subscribe to my free monthly Survive & Thrive letter.
