The United States’ budget deficit was $1.8 trillion during fiscal year 2024, which ended in September, making it the largest deficit outside the Covid era, and an increase of 8% over 2023’s deficit. Interest payments on our national debt hit $1.1 trillion for the first time, a 29% increase due to higher interest rates and a larger mountain of debt. The nation’s debt, now $35 trillion, equates to $106,000 for each of the 330 million U.S. citizens and is projected to continue growing as far as the eye can see. The debt represents 120% of our economy as measured by GDP (Gross Domestic Product), another modern, non-Covid era record surpassing the 119% level reached during 1946 in the aftermath of WW-II.
The problem with the debt is not a lack of revenue as receipts to the Treasury increased $479 billion in fiscal 2024 to $4.92 trillion. Unfortunately, spending increased $617 billion to $6.75 trillion. One of the keys to personal fiscal responsibility is learning to live within your means. Our elected leaders in Congress apparently don’t possess that discipline. It’s too easy spending other people’s money – keeping their constituents happy and themselves in office.
Currently, federal spending equals 24% of U.S. GDP. In addition to interest payments, the other largest outlays were Social Security, $1.52 trillion, Medicare, $1.05 trillion, and military, $826 billion, up 7%, 4% and 6%, respectively. At least, with Social Security, it has a trust fund that bridges the gap between receipts and payments to beneficiaries. That trust fund is expected to be exhausted in about ten years, at which time Congress will be forced to make difficult decisions to extend the program’s longevity.
Until Congress embraces a serious attitude to put our fiscal house in order, the debt and deficits will only worsen. Republicans and Democrats alike are more interested in kicking the can down the road than addressing this challenge. They either bury their heads in the sand hoping the problem will go away, naively believe debt and deficits don’t matter, or are more interested in holding onto power than addressing the problem.
The weighted average interest rate on outstanding U.S. debt was 3.33% at the end of July, up about half a percentage point from a year earlier. If the debt burden continues to grow unconstrained, a case can be made that the government’s appetite for cash could be a singular cause for rising rates into the future. At current trends, we may see a $40 trillion national debt in the next three years. If rising debt levels cause interest costs to increase by just 1%, then payments on that debt will be about $1.7 trillion, a jump of 55%.
The day may come when we lose the ability to turn our financial ship toward sustainable prosperity. History is replete with examples of formerly powerful countries relegated to the dustbin of irrelevance. It will take an all-hands-on-deck effort with an unselfish, bipartisan commitment in which leaders are willing to place their personal career ambitions secondary to the national best interest. If something is unsustainable, then it will not be sustained. In the case of debt and deficits, let’s hope it is reversed because Congress adopts a policy of fiscal responsibility.
Sam Taylor, CIMA®, AIF®, CRPC®