Since 1980, annual federal spending has almost always exceeded available revenues, resulting in deficit spending in 39 of the 43 years (1980-2023).  Deficit spending is far greater in years when there are extraordinary conditions such as wars, recessions or major emergencies (e.g., Covid-19 pandemic).  However, even in years without extraordinary conditions, annual deficits have been in the range of 2-4% of GDP.

This pattern of ongoing deficit spending has occurred under both Republican and Democrat Presidents, regardless of whether the President’s party has partial or total control of Congress.  Especially in years where there are extraordinary conditions, the President (regardless of party) and Congress have engaged in large deficit spending.  Republicans have, at times, been successful in moderating the extent of deficit spending; but at other times have recommended and approved large deficit spending. 

Given the ongoing pattern of moderate to large deficit spending over the years, it is not surprising that the country has accumulated a huge national debt.  The national debt has continued to grow substantially under both Republican and Democrat Presidents, and regardless of political party control of Congress.  Republicans have, at times, been able to moderate the amount of increase in the national debt; but at other times have presided over record increases.

The pattern of ongoing deficit spending and an ever-increasing national debt has been exacerbated by the continued unwillingness or inability of Republicans and Democrats to either considerably reduce spending or considerably increase revenues.  Since 1970, outlays (spending) have averaged 20.4% of GDP, while revenues have averaged 17.4% of GDP.  When the Republicans have gained control of the presidency and both houses of Congress, they opted on five occasions to enact tax cuts in lieu of paying down the national debt or adopting spending plans without deficits.  Republicans have also steadfastly opposed tax increases.  And, while they have often demanded major reductions in spending (including Social Security and Medicare), Republicans have always abandoned or compromised on these demands.  On the other hand, Democrats have almost always pushed for greater spending, even if it meant larger deficits and increased national debt.

The United States is not alone when it comes to high levels of spending, annual deficit spending and a huge national debt.  Most major developed countries of the world spend a higher percentage of GDP on government than does the US.  Also, most countries of the world engage in annual deficit spending.  As to total national debt, the US has a higher level than most countries; but most countries have levels of debt than exceed 50% of GDP. 

It should not come as a surprise that the US and most countries of the world engage in deficit spending and have high levels of national debt. This is because the countries of the world are alone when it comes to addressing extraordinary conditions that inevitably require spending significantly in excess of the available revenue.  In the US, it’s the federal government that comes to the rescue of state and local governments, the people, and the private sector when there are recessions.  It’s the federal government that takes on the extraordinary expenses of war, pandemics, or natural disasters.  But there is no external entity to help the federal government absorb these costs—no one bails out the federal government for these extraordinary and often huge expenses.  Instead, we’re a county already locked into deficit spending in ordinary times; and huge deficits and national debt are the inevitable outcome when it comes to dealing with extraordinary conditions [Note: We’ll consider the solution of a “Budget Reserve” in an upcoming post].

Given differing philosophies as to the role and size of the federal government, it is not surprising that there is little consensus regarding the appropriate level of federal spending. The increases in spending over time appear to be huge in terms of nominal dollars (880% increase overall, and 5.45% per year).  But when we factor in the effects of population change and inflation, we see that the increase in “real spending” is modest (real spending increased somewhere in the range of 84-125% during the 43-year period, with the average annual increase somewhere in the range of 1.43 to 1.9%).  Federal spending also appears to be moderate when viewed against the overall increase in state and local spending (961%, or 5.65% per year). 

While ongoing deficits and an ever-increasing national debt are certainly far from ideal, the drawbacks they pose seem to be accepted as a “lesser of evils” by Democrats and Republicans.  The one real drawback to deficit spending and a large national debt is the cost of interest.  Like too much credit card debt, it becomes problematic when interest payments on the national debt start to consume a large share of federal spending.  Even though interest payments currently only comprise about 6% of federal spending, this amounts to $400 billion per year that is diverted from other spending needs. On the other hand, eliminating interest costs would require either massive spending cuts, massive tax increases, or some combination.  Throughout the 43-year period, Republicans and Democrats have been unwilling or unable to act on these solutions; instead, our country has tolerated the costs of interest (deficit spending and large national debt), like most other developed countries of the world.

Looking back, little real progress has been made when it comes to addressing legitimate policy differences with respect to federal spending, national debt, and related issues.  Instead, the issues have been debated via a highly partisan rubric that has been ineffective, misinformed, and dominated by political motives. Republicans and Democrats (along with their media and special interest allies) almost always place full blame on the other party and its leaders when it comes to excessive spending or harmful cuts.  Yet we have seen that wars, recessions, and national emergencies (pandemics) are what actually prompts this increased spending or reductions; and the increased spending or reductions are usually necessary and appropriate.  Both parties have presided over increased federal spending and increased national debt.

Going forward, here are the legitimate policy questions that merit an informed debate:

1. Does the federal government really spend too much, considering the impact of inflation and population growth, spending by other countries, and spending by state and local governments?   How should we assess or evaluate increased spending that is necessary to respond to unpredictable yet inevitable extraordinary conditions (war, recession, pandemic, etc.)?  By what metric(s) can we assess whether spending has been excessive?
2. Is it necessary to eliminate deficit spending; or, given that most other countries in the world engage in deficit spending, is there a level that might be tolerated?  And, what about deficit spending that is necessitated by extraordinary conditions?
3. Is the total national debt too excessive, considering that most developed countries have very high national debt?  What are the harms of having a high national debt, and specifically, what level of interest cost is too much?  Is it necessary to eliminate the entire national debt; or, should some level of national debt be tolerated?
4. If it is determined that deficits and/or the national debt must be eliminated or reduced, what is the appropriate balance of cuts and revenue enhancements to accomplish this; and, how much time should be allowed to achieve the results?  More particularly, what are the specific revenue enhancements and spending cuts that should be adopted?