Tag: finance

American Federal Debt

American Flag Photo by Lisa Setrini-Espinosa

A year ago, I wrote about the USA debt.  Back then I noted that 27% of federal spending was on borrowed money for fiscal year 2024. For fiscal year 2025, because of President Trump’s DOGE effort and his tariffs, 25% of federal spending was on borrowed money. (There was a deficit of 1.78 Trillion dollars and spending was 7.01 Trillion dollars.)  That is a slight improvement, but if you had to borrow a dollar for every four dollars you spend you would be in serious financial trouble.  And yet we continue to borrow more and more money.

So far this fiscal year (through June 2026), it is not looking good.   Federal spending is up 3% and deficit spending is up 2% when compared to the same time period last year and right now the 15% of the federal spending goes for interest.  The only category with a larger percentage is Social Security (23%).  Every other category (e.g. medicare, defense) has a smaller percentage than interest.  But that is not the whole story. 19% of all federal spending goes to maintaining the federal debt, so the effect is more than the 15% of interest payments.

We are not making any headway on the federal debt.  In fact, we are digging ourselves deeper and deeper into debt. I predict in just a few years, interest payments will be the largest category of federal spending.  We are and we will be paying for money we already spent in years past.  We have to stop kicking the can down the road.  This is a case of pay now or pay more later.

I have always been concerned about the federal debt.  I first voted in1976 and the debt was 3.54 Trillion dollars in 2025 inflation adjusted dollars.  25 years ago, in 2001, there was the last federal surplus.  The debt then was 10.55 Trillion dollars in 2025 inflation adjusted dollars. At the end of the fiscal year 2025 the debt was 37.64 Trillion dollars.  It has more than tripled in 24 years, and is more than ten times the debt from 1976. 

Some people will argue it is not that bad because the economy is much larger.  There is some truth in that but if we compare the debt to the gross domestic product (GDP) we find disturbing record numbers.  At the end of the fiscal year 2025 the federal debt to GDP was 124%.  Outside of the last 15 years, the only time the ratio was close to that high was in 1946 when the federal debt to GDP was 106%. That was due to all the borrowing during World War II.  And after the war, the post-war economic boom and government surpluses brought down the ratio.  We need those government surpluses to bring the deficit and debt under control.

As I have always said, we need to raise taxes and cut spending.  And we need to be smart about it.  It will hurt a little, but it needs to be done now.  If we wait, it will hurt a lot more when we finally address the deficit. 

USA Debt

American Flag Photo by Lisa Setrini-Espinosa

Do you know that the American federal government spends more money paying the interest on the federal debt than it spends on defense?  Did you know that last fiscal year over a quarter of federal spending was with borrowed money?  We have a debt problem, and Congress seems unable to even come close to balancing the budget.  Every day we spend $2.6 Billion on interest. That is more than $30,000 per second for just interest.  It has been 24 years since the federal government has had a surplus.

In the last 24 years the federal debt has greatly increased, from $5.8 Trillion to $36.7 Trillion (or now 122% of the GDP).  There are several factors for the increase.   The obvious cause is not enough revenue coming in for the spending, and experts blame that on the aging population and the rising cost of healthcare.  I believe some other factors are the two tax cuts (G.W. Bush and Trump), the Great Recession, and the Pandemic. And I believe Congress has not had the will power to address the deficit, and that is due to we the people wanting lower taxes and still wanting all the benefits. 

Ever since I have been able to vote, I have been concerned with the federal government’s debt.  And I have been saying we need to raise taxes and cut spending. It is an unpopular idea, however the Trump administration is actually raising taxes (tariffs) and cutting spending (DOGE).  Tariffs are an indirect taxation on us, though the Trump administration does not characterize it that way. Unfortunately, by making the former Trump tax cut permanent, the Trump administration is also cutting taxes.  When I said raise taxes and cut spending, I did not have in mind the way the Trump administration is doing it.  

I would have taken more time to cut spending, much like how the Clinton administration did it.  The Clinton administration over a five year time period cut more than 250,000 federal jobs, consolidated more than 800 agencies, and eliminated over 100 programs.  It was much less disruptive than the chainsaw approach of DOGE.   And I would also have let the former Trump tax cut expire, or at least let it expire on those making more than a million dollars, and thus bring in more revenue. And I would use tariffs sparingly.  Note, I believe that making the former Trump tax cut permanent undermines what they are doing and may cancel out the tariffs tax increase.  Yes, cutting taxes does improve the economy and could bring in more tax revenue, but results over the last 50 years show that the net result of cutting taxes is to increase the deficit.

Congress needs to make some hard decisions.  They do not need to balance the budget right away, though that would be a good thing to do.  They do need to significantly reduce the deficit.  The deficit for fiscal year 2024 was $1.83 Trillion.  The federal government spent $6.75 Trillion and collected $4.92 Trillion in revenue.  That meant that the government spent 27% more money than it received.  Over a quarter of federal spending was with borrowed money!  This is shocking!  Yes, this will make those interest payments even higher.  How long can we keep doing this?

According to the Congressional Budget Office, fiscal year 2025 is estimated to have a deficit of $1.9 Trillion and in fiscal year 2035 the deficit estimate is $2.7 Trillion.  We are still digging ourselves into a much deeper fiscal hole.  This is not good.  We need to prioritize reducing the deficit and work towards balancing the budget.  We need to raise taxes and cut spending, and we need to do it in a way that is less disruptive than the current methods.