(Brad Polumbo, Foundation for Economic Education) Debate continues in Washington about more multi-trillion-dollar spending plans. But we just got an ugly reminder that the federal spending we’ve already passed is bankrupting the country.
The nonpartisan Congressional Budget Office just released its latest projections, and they offer a dire warning indeed. The government analysts expect the annual federal budget deficit—the gap between spending and revenue—to hit an eye-popping $3 trillion in fiscal year 2021. That’s roughly $20,935 in new debt per federal taxpayer, to be added in just one year!
This will be just slightly below the record-breaking deficit the government ran in fiscal year 2020. But nonetheless, this astounding $3 trillion sum is nearly 3 times higher than the already-high budget deficit for 2019. Relative to the size of the economy, it will be the second-largest budget deficit since 1945—which was incurred during World War II.
Budget deficits and trillion-dollar sums are hard to conceptualize. So to understand what this means practically, here are 3 tangible ways skyrocketing federal debt hurts everyday Americans:
- We will be forced to pay trillions more in federal taxes just to cover the annual interest payments. Right now, even before all this new debt, taxpayers spend $800 million per day just servicing the interest on the national debt.
- We will face slower economic growth and lower paychecks as the debt crowds out private sector investment and drags down the economy. According to the nonpartisan Committee for a Responsible Federal Budget, “A generic plan to gradually reduce the [national] debt to its historic average would… increase income per person by $5,500.” Going in the opposite direction has the opposite effect.
- We continue to court a fiscal crisis in the near-to-medium-term future. According to the Peter J. Peterson Foundation, high levels of federal debt mean “greater risk of a fiscal crisis” that “could further destabilize the U.S. economy and erode confidence in U.S. currency on an international scale.”
So, all Americans should be seriously concerned to learn that the debt will further explode in 2021. But why exactly are this year’s figures going to be so extreme?
After years of fiscal irresponsibility under Republicans and Democrats alike and with large entitlement programs spiraling toward bankruptcy, we were always going to run a large deficit in 2021, like we did in 2018, 2019, etc. But it wasn’t going to be so astronomical, like $3 trillion.
What changed? One big factor is the multi-trillion-dollar spending package President Biden and Democrats in Congress forced through in the name of “COVID-19 relief” and “stimulus.”
In reality, the package was full of unrelated waste and partisan projects. Plus, Ivy League economic projections show it will actually hurt the economy in the long run. But it did do one thing successfully: spend trillions of taxpayer dollars. And that’s one big reason why our debt problem is set to spiral even further out of control.