America’s current budget is facing a significant deficit, with the federal government spending $2 trillion more than it has raised in taxes over the past year. This deficit is not due to a recession or stimulus spending, but rather a reflection of America’s longest period of low unemployment in fifty years. Despite this, the deficit has been above 3% of GDP since 2015 and the country’s net debts are expected to surpass 100% of GDP next year.
The rising deficit can be attributed to various factors, including military spending, global economic instability and the COVID-19 pandemic. Unfunded tax cuts and stimulus programs have only added to the country’s fiscal challenges. While both Republicans and Democrats claim to prioritize fiscal responsibility, their actions often contradict their words. The next president will have a crucial decision regarding the renewal of Donald Trump’s tax cuts from 2017, which could further worsen America’s fiscal outlook.
In recent years, near-zero interest rates made managing large debts relatively easy. However, with rates now higher, the government is spending more on debt servicing than national defense. This shift in interest rates has added urgency to addressing America’s growing deficit. Without decisive action, the country’s fiscal trajectory will continue to deteriorate and pose a significant economic challenge for future generations.