Examining the Challenges of the Federal Budget
In the wake of Congress averting another potential default, the reality of the federal budget’s condition has come under scrutiny. The recent compromise, which addressed a budget overdue by six months, highlights a concerning trend: Congress has not passed a genuine federal budget—one of its fundamental responsibilities—in quite some time. This has led to a situation where the current budget carries a staggering $2 trillion deficit, a figure that matches the entire federal national debt from three decades ago.
During a recent Concord Coalition New Hampshire advisory board meeting, Bob Bixby, the executive director, painted a grim picture of the federal fiscal policy. He described the current state as being “as close to a death spiral as I can recall,” particularly in light of the $663 billion interest payment on the national debt. With interest rates previously near zero, deficit spending appeared to be a simple solution for politicians’ agendas. However, this approach has been utilized by both Republican and Democratic administrations, casting doubt on the former’s claims of fiscal prudence.
The composition of the federal budget reveals that discretionary spending, which is not mandated by law, accounts for 27% of the total $6.4 trillion budget. Of this portion, defense spending comprises 12%. In contrast, mandatory spending, which includes health care and Social Security, constitutes 63% of the budget and is expected to rise as the population ages.
On the revenue side, the federal government collects approximately $4.439 trillion, leading to a $2 trillion deficit. This revenue stems from various sources including corporate taxes (10%), payroll taxes (32%), individual income taxes (52%), and other miscellaneous federal taxes (6%).
The path forward requires either a reduction in spending, an increase in revenue, or a combination of both to balance the budget and begin reducing the debt. The expiration of President Trump’s tax cuts at the end of 2025 may offer some relief, but it remains uncertain whether they will be allowed to lapse. Proposals from President Biden and others suggest tax increases for billionaires and corporations could be part of the solution.
Moreover, bipartisan efforts are needed to scrutinize Social Security and health care spending without threatening the benefits of those in need. This could involve reevaluating retirement ages, increasing taxable income for Social Security, and adjusting benefits for high-income retirees.
The Gramm-Rudman-Hollings Budget Act from the late 1980s, authored by NH Sen. Warren Rudman and others, aimed at enforcing budget balancing but was ultimately undermined. The question remains: What will it take for Congress to exhibit the necessary courage to align spending with revenue and secure the nation’s financial future?
