The news out of DC is currently dominated by the 2026 budget Bill. There is a great deal to unpack but I want to start with a level set.
Our National Debt Is Growing Faster Than Our Economy
In 2019, the year before Covid, the federal deficit was $985 billion. In 2020 and 2021, the federal deficit ballooned to $3.1 trillion and $2.8 trillion, respectively, due to Covid. Coming out of Covid, if our federal government had acted responsibly, the federal deficit should have come down and approached 2019 levels over time. That did not happen. Instead, the federal deficit was $1.4 trillion in 2022, $1.7 trillion in 2023, and $1.8 trillion in 2024. We are on pace for a federal deficit of $1.9 trillion this fiscal year.
The Wharton School of Business projects that the current Bill will add $3.2 trillion to our debt over the next ten years. This is on top of deficits that were already projected. In other words, the proposed budget is going in the wrong direction. Moreover, our debt is larger than our GDP and is growing at a rate faster than our GDP. This is not sustainable, though it may help explain why Moody’s downgraded the US, and why we have seen some wonkiness in US treasury bonds.
We Should Question Our Defense Spending
Approximately 30% ($1.8 trillion) of the federal budget is discretionary spending. More than half of our discretionary spending ($890 billion) is defense. The proposed budget reduces discretionary spending by 7.6%, but includes a 13.4% increase in defense spending, to just over $1 trillion. To put this in perspective, China’s defense budget is $296 billion and Russia’s is $145 billion. It is not clear to me why we need such a large increase in defense spending or why our politicians seem so unwilling to question this sacred cow.
We Cannot Balance The Budget Without Making Structural Changes To Social Welfare Programs
Approximately 70% of the federal budget is mandatory spending. This includes interest on our national debt and social welfare programs like SS and Medicare. With our aging population, the cost of these social welfare programs is rapidly increasing. Many politicians have proclaimed that they will not touch social welfare programs. However, the Bill currently under consideration contains the following interesting little morsel: “In the House of Representatives, the goal of this concurrent resolution is to reduce mandatory spending by $2 trillion over the budget window.” In my view, the House is signaling that it will eventually have to make changes to social welfare programs in order to stem our growing debt. It has to. The math just does not work otherwise.
DOGE Is Still Not The Answer
As I researched this, I found myself asking where is DOGE in all of this. When DOGE was first announced, we heard predictions that it would save $2 trillion, then $1 trillion, then $500 billion, etc. According to the DOGE website, current savings are estimated to be $170 billion. It is unclear to me if these savings are over a year or ten years or something in between. It isn’t nothing, but it isn’t going to cure our debt and deficit woes either.
Politicians Are Not Shooting Us Straight When It Comes To The Debt And Deficit
In short, our government continues to straddle us with unsustainable debt. As a result, the American taxpayer is going to feel some pain in the coming years. That pain will come in the form of tax increases or reductions in social welfare programs or both. There is no other way to stem our growing debt.
Leave a Reply