Why federal deficit exists
With a national debt of $21.3 trillion, keeping the federal government’s spending within the limit of what revenue is taken in has become critical. Yet, after decades of warnings that needs to be done, political leaders have not found the will to make it happen.
Last week, it was reported the government ran up $76.9 billion in deficit spending during July. At that rate, the annual deficit may be the highest in six years.
How did that happen? Big-government backers complain about last year’s package of tax cuts. They have reduced revenue, thus increasing the deficit, they complain.
Well, yes. But look at the numbers: Thus far this year, federal government revenue is up by 1 percent. But spending also has increased, by 4.4 percent.
So Washington is taking more out of our pockets, even with the tax relief that appears to have jump-started the economy. Were revenue the only factor, we would be making a dent in the national debt.
But as long as spending continues to increase at a rate faster than revenue growth — or, for that matter, growth in the economy in general — deficits will persist.
Last week’s report underlines a point made about the debt: We don’t have a revenue problem. We have a spending problem.