By The American Contemporary
The House Budget Committee has just released a series of financial reports and projections outlining the federal income and expenditures of the nation over the next decade. Of course, before delving into the report, it is important to acknowledge that two facts. The first is that while we hope our elected officials act impartially, there are inherent biases in committee reports, as the majority and minority parties both attempt to shift blame onto their opponents. While majority blame could be argued between the two parties and their ideologies, the truth of the matter is that these reports are the result of decades of mismanagement and governmental policy that extends beyond any single congressional gathering. Second, these numbers are based on mathematical projection, but are not guaranteed. Future domestic/international developments, policy changes, and monetary analytics may alter these projections over time. As such, these reports represent a higher probability potential outcome, rather than an assured outcome. That being clarified, let’s delve into the details.
First, we must consider the revenues the government is expected to draw in. Between the years 2025 and 2034, the federal government is expected to acquire $62.6 trillion in taxes. This amounts to approximately $6.2 trillion per year on average. Comparatively, the US government brought in approximately $5.03 trillion in taxes during the 2022 fiscal year. Further, the projection can be broken down into specific tax revenues. Of the $62.6 trillion, roughly half (~$33 trillion) will come from individual income tax, $20.9 trillion will come from payroll tax, $5.1 trillion from corporate income tax, and $3.7 trillion in other revenues and taxes. Compared to previous projections, this new model shows a total income increase of 13.4%, with individual income taxes increasing by 15.4%, payroll taxes increasing by 10.4%, corporate income taxes increasing by 73.5%, and other taxes dropping by 38.3%. Reasons behind these changes include changes to tax policy, general inflation related increases in costs, and changes in modeling to account for certain tax credits and other factors.
Moving on, let’s consider the interest cost projections. For anyone unfamiliar, these costs reflect the interest payed by the federal government on debts it holds. The most common forms of debt include payment on government securities, payments on loans from government trusts, pensions, and other organizations, and other forms of loans which are given to the government. The report first states that interest costs in the 2023 fiscal year have grown to $659 billion, a 39% increase from the previous year. This is primarily attributed to elevated interest rates as a byproduct of curbing inflation. The report projects the 2024 year to accumulate $870 billion in interest debt, which will increase to $951 billion by the end of 2025, and eventually reach $1.6 trillion by 2034. This amounts to a total projected interest debt of $12.4 trillion over the next decade, based on this model. This is a staggering increase from previous projections, which in 2021 showed a 10-year total interest debt of $4.5 trillion. Finally, this report concludes with a brief analysis on projected interest rates, which are predicted to be higher than previously thought.
Finally, we will consider the state of government trust funds and social obligations. For anyone unfamiliar, these public trusts are pools of money which are intended for general good services, and include programs such as social security, Medicare, highway construction, etc. Before delving into this, it is important to note that most the findings around these reports are not new, and have been projected for some time with most argument surrounding exactly when it will happen, rather than if it will happen. According to this report, the Old-Age and Survivors Insurance Trust Fund (one of the two major components of social security) will be unable to meet its financial obligations in 2033. Barring any change in law or policy, this would likely result in a cut in benefits, which according to this report amount to a roughly 25% cut in benefits. The House Committee projects that Medicare will remain solvent through the next 10 years, however a 2023 report by the Medicare Trustees predict the fund will become insolvent by 2031 and as a result will only be able to cover 89% of schedule A benefits (which cover patient hospital stays, skilled nursing facility care, hospice care, and some home health care). Finally, the Highway Trust Fund is projected to become insolvent by 2028, and have expenses which outpace the revenues generated via taxes by nearly $300 billion.
Given this information, what does it mean for the average citizen and for the nation as a whole? From a fundamental perspective, these reports reflect a growth in tax income with a corresponding increase in obligations by the federal government. Disconcertingly, the expected interest debt alone is anticipated to eat away roughly 20% of revenues gain through taxes over the next decade, based on these projections, leaving only an average income of roughly $5 trillion per year after interest payments. Considering that inflation and spending continue to rise, along with interest rates, it is problematic that the projected yearly income after interest debt will roughly stay the same as previous years. This would suggest that more funding would be needed from other sources to keep spending current as inflation continues.
Additionally, this can be observed in the projections surrounding public trusts. With many established programs reaching the point of insolvency, the question of both their futures and the impact on services offered to Americans rises. Social Security is a prime example of this shortfall. While it must be acknowledged that Social Security is more than a retirement fund, and also acts as an insurance policy in the event of injury or disability, the rate of return for payers into these funds has been shown to be lower than they otherwise could have gotten through a retirement account. Between premature death and poor interest rates, Social Security in some cases has been shown to actually be a losing investment, with individuals never recouping what they paid in during their retirement. Further, if these reports are accurate, young people paying in now will earn even less in their retirement, as the fund will have insufficient funds to accommodate them. Apart from impacting the average American, this also tends to impact poorer communities to a greater extent, as they are more reliant on these plans for support, and would have benefited from a superior rate of return on their retirement account.
From an infrastructure point of view, the already sparse landscape of development and maintenance across the country could face even harsher burdens as highway funds become insolvent. Bailouts or changes to tax policy could mitigate this, but would likely result in additional economic strife to the average American.
Overall, this report paints a concerning picture for the future of government funded projects, as well as the continuously mounting national debt. It should be noted that the US does enjoy a relatively low tax-to-GDP ratio compared to other developed nations, meaning Americans are generally able to retain more of their earnings compared to other nations which pay more to government services. But knowing this, we seem to have two primary courses of action (well, really three if politicians choose to not act, which is inadvisable but unfortunately likely).
First, the government could increase taxes to fund these services, or could attempt to provide additional services to citizens to supplement those lost due to budgeting. This of course, from a foundational perspective, is illogical. Adding more services while already in a deficit would only exacerbate the issues faced by the nation. Further, a poor history of federal money management over the previous century has demonstrated that increasing taxes would likely do little to improve overall quality of services, but would rather be used, borrowed, or stolen by other agencies to fulfill additional government projects. A common challenge would be the formation of more socialized systems of coverage, however we take issue with this on several levels. First, it overextends the powers of the central government and grants them authority over aspects of life that should be reserved for the individual, as dictated in the foundational documents of the nation. Second, it would likely not produce anything of sufficient quality for the average person. Programs in other nations show that while individuals do enjoy reduced costs, the quality of care is generally poorer, programs are over-encumbered, and quality tends to degrade over time disproportionately affecting poorer citizens who cannot afford ulterior options. Further, the rise in taxes would also mean poorer citizens would have even less money at their disposal for wealth building and personal expenses. There are of course many other concerns that come from the fundamentalist approach to policy (which can be explored further in other articles), but they are beyond the scope of this report.
Alternatively, the government could develop a new system of aid. One that is focused on building wealth and security for individuals, perhaps not out of obligation to a general fund which the government is free to manage (or mismanage), but rather an option granted to citizens as a true benefit that can be signed up for and enjoyed. Of course some security net would be required, and such a thing would need to be discussed, debated, and agreed upon by the majority, as those benefits would ultimately benefit said majority. But using this logic, we must first address the runaway budget of the government. The spending, which both major political parties are guilty of exacerbating, has resulted in an unsustainable and harmful tumor which is growing and spreading throughout American life. From our perspective, we must work to balance our budget as it is now. Cutting income or increasing tax obligations would create a short-term benefit at the expense of long-term success. Only by addressing these issues in the present can we hope to move past them.