America is facing a significant challenge with its budget deficit, which has grown to $2 trillion more than what the government has collected in taxes over the past year. This deficit is not due to a recession or stimulus spending, but rather reflects the country’s longest period of low unemployment in fifty years. Despite this, the deficit has remained above 3% of GDP since 2015 and is expected to rise even further next year, surpassing 100% of GDP.
The rising deficit can be attributed to a combination of factors, including wars, the global financial crisis, 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 face a crucial decision regarding the renewal of Donald Trump’s tax cuts from 2017, a move that could further worsen America’s fiscal outlook.
In recent years, near-zero interest rates made managing large debts easier for the government. However, with interest rates now higher, more money is being spent on servicing the debt than on national defense. This shift in interest rates has added urgency to addressing America’s growing deficit. Without decisive action, America’s fiscal trajectory will continue to deteriorate and pose a significant economic challenge for future generations.
