The Consequences of Deficit Spending
As an individual, if you anticipated that your income for the next year would total about $50,000 chances are you wouldn’t budget for spending of $200,000. You wouldn’t plan to put yourself that far into debt and you would have a very difficult time financing that kind of spending without the income to support it. Yet this is what the government seems to be doing with the massive spending spree currently underway. Just seven years ago, there was a budget surplus in the U.S.
In 2008, the budget deficit was a staggering $459 billion. And if you have a hard time fathoming a number that size, consider that this next year’s budget deficit will approach $2 trillion. For fiscal 2009, which will end at the end of September, the deficit is anticipated to be $1.59 trillion. To put that in perspective, the nation’s actual deficit for the first 197 years that financial data was tracked between 1789 and 1985 was $1.54 trillion. We are on pace to dig a hole deeper than all of those years combined in 2009 alone. There are plenty of ways that politicians justify all of the spending, but there are several areas that make a deficit of this size a major concern:
- Someone Has To Pay: The most obvious consequence of taking on so much debt is that eventually, someone will have to pay for all of this spending. No one seems willing to take responsibility and rein in the spending now, but I don’t think anyone is eager to saddle future generations with this level of debt either. The reality is that spending money that you haven’t earned or collected has long term consequences that could lead to major financial problems for the U.S. in the future. Individuals are expected to keep their own budgets under control, but the Federal government holds itself to a different standard.
- Spending Is Likely To Increase Over Next Ten Years: The spending trend gets even more troublesome when you look at the demographics of our population. Right now, most of the baby boomers are still working. Still, 37% of this year’s budget has gone to either Social Security, Medicare, or Medicaid. As the population gets older, the costs of these programs are anticipated to be 47% of the national budget just 10 years from now. You would need to stack $100 bills 923 miles into the air, or the distance from Chicago to New Orleans, in order to add up to the $1.36 trillion spent on just these three programs in 2009. Let’s not forget that the proposed overhaul of the health care system is expected to cost another trillion dollars.
-Tax Receipts Are Declining: Tax revenue this year is down $353 billion from a year ago and unemployment is still growing. The government is collecting less money from taxes in a shrinking economy at the same time that they are increasing spending so dramatically. The unemployment picture remains bleak for some time and the Obama administration is trying to keep their promise to cut taxes. At some point, something has to give when it comes to tax collections and spending.
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