June 3, 2019
Many economists predict a recession some time in 2020. Should that occur, two things will happen:
- Tax revenue will fall
- Federal spending will rise
Tax revenue will drop because people will make less and take less home. As a result, many more people will make unemployment claims, causing the government to spend more on safety net programs.
What does it all add up to? Higher deficits.
Those from the Keynesian economic school of thought say to run deficits during tough times and surpluses otherwise. The problem is, we haven’t been putting the theory to practice!
In fiscal 2018, the official federal budget deficit was $779 billion while the national debt went up $1.2 trillion. That “small” $421 billion difference, which is more than half the federal budget deficit, is the off-budget spending that Congress doesn’t count.
It includes the revenue and spending of federal entities that Congress wants to isolate from the normal budgeting process. And it’s been averaging out to be hundreds of billions of dollars per year.
A site I link to often – usdebtclock.org – shows the current state of affairs.
We’re now $22 trillion in the hole, and it will be $23 trillion by next year. And by the of 2020, President Trump’s first term, it will be nearly $25 trillion. That doesn’t include $3 trillion in state and local debt, or $6 trillion of unfunded pension liabilities.
And this is all without a recession! The annual budget deficit would easily hit $2.5 trillion in a recession, and the debt would probably get near $30 trillion.
This math isn’t bearish – it’s reality.
For a fix, tax the rich. But that will do little to curb the real problem – government spending. It will, however, send wealth to overseas tax shelters.
We’re living in fiscal insanity.