America, we have a problem.
The fiscal year 2019 federal budget deficit though July was $867 billion. That’s a deficit reached in only ten months of the fiscal year. The entire deficit for all of fiscal year 2018 was $779 billion. If deficit spending the last two months of FY2019 is on pace with the same period in FY2018 the final will be $962 billion or roughly 4.7 percent of GDP. The economic expansion that began in June 2009 became the longest in U.S. history in July. To have a deficit this high in the midst of that run is unprecedented and a disgrace.
Not to dull you with numbers – let’s face it, we are the green eyeshades crowd – but we need to try and put this in context. The federal deficit in the month of July alone was $120 billion. That means in July, every day the government borrowed $3.87 billion, or $161 million an hour, $2.7 million a minute, or nearly $44,800 every second. If you counted the July deficit as revenue, it would be the second highest source for the month, narrowly losing out to individual income tax revenue ($127 billion). If you counted it as spending, it would outstrip every other category, easily outpacing Social Security ($88 billion), Medicare and National Defense ($56 billion each).
No matter how you count it, it isn’t sustainable long term.
Huge deficits (and they were huge) made sense coming out of the Great Recession. Counter-cyclical programs like Unemployment Insurance and Medicaid kicked into high gear as millions of people lost their jobs. Economic activity was down, so tax revenue fell as well. And, whether you liked it or not, there was a large temporary increase in government spending in the form of the bank bailout and the stimulus. Today we see increased government spending when the economy is ticking along with steady growth and the unemployment rate at historically low levels. What should be seen as the polar opposite situation of the Great Recession.
While the economic conditions of 2008 and 2019 may be noticeably different, the dysfunction in Washington is not. Taxpayers find themselves in this unprecedented deficit and debt situation because a majority of lawmakers are unwilling to make, not just tough decisions, but any decisions.
The recent budget deal will add hundreds of billion dollars in deficit spending over the next couple years and set the stage for more than a trillion dollars of red ink in coming years. That was piled on top of the last $300 billion budget deal and the nearly $2 trillion in lost revenue from the 2017 tax cut. A common, bipartisan theme across these was an unwillingness to say no. It’s worth remembering that some of the same lawmakers who were the most vocal opponents of deficit spending during the recession voted enthusiastically for the 2017 tax cuts and the recent deficit-busting spending agreements.
The economic head winds of President Trump’s trade war are not helping. Sure you could point to the $57 billion in customs duties that have gone to the Treasury so far this year, $24.5 billion more than the comparable time period last year. That “win” is wiped out by the $28 billion dollars the Trump Administration has pledged in what is now two consecutive years of trade aid hush money to placate farm owners.
It could get much worse. Virtually all of the individual side tax cuts expire in 2026, which, by design, will put enormous pressure on lawmakers to extend some or all of them. There is no end in sight for the trade wars. In fact China is digging in for the long haul and the specter of slapping tariffs on autos and auto parts is still in place. And finally, if an actual recession does hit, as it appears to be doing in other countries, the pressure to increase spending or pass additional tax cuts will increase.
It doesn’t have to be this way. If you’ve ever run a business, a nonprofit, or a household, you’ve had to balance competing priorities. While the federal government isn’t a household (in theory it doesn’t expire, and can print money), Washington could benefit from some budgeting common sense. Identify needs over wants, only borrow when absolutely necessary, and learn to prioritize.
There are a lot of “unprecedenteds” right now. Length of economic recovery, debt as a percentage of GDP, the national level of individual mortgage debt, Old Town Road’s stay atop the Billboard Hot 100. Perhaps one more could be a majority of lawmakers standing up and saying enough is enough and righting the fiscal ship.