Did anybody catch the fact that the federal deficit1 for the period from October 2017 through September 30, 2018 (the end of the federal government’s fiscal year) was $779 billion ($779,000,000,000)? The country’s debt load stands at $21.5 trillion ($21,500,000,000,000) and federal spending during this same period rose by 7% while revenues rose by a whole 1%.

Based on the 2018 U.S. population2 of 326,766,748, every person in our country is responsible for roughly $66,000 of our country’s debt. Does that bother anyone?

As individuals, we couldn’t increase our spending by 7% in a year while increasing our income by only 1% for very long before our lenders would cease lending to us. And it wouldn’t take us very long at those rates to accumulate more debt than we could ever hope to repay.

And still, we have a lot of people here is the U.S. that want free health care for all, or at least government subsidized health care for all. There’s also clamoring that college should be free. Who’s going to pay for all this? As a nation, we can’t even cover our current obligations with current revenue. We were short a mere $779 billion last fiscal year!

We’ve been told by Democrat and Republican administrations that we can grow our way out of the deficit with a strong economy and by putting people to work. Corporations would pay more taxes and more individuals would pay taxes, thereby bringing revenues up to expenses. Let me share some recent statistics about that. In this last fiscal year, corporate tax revenues fell3, yes fell, by $71 billion. The Tax Policy Center3 has updated information that shows in 2018 76.4 million taxpayers paid no, yes zero, federal income tax. That is 44.4% of taxpayers. This, at a time when unemployment is at an 18-year low and wage growth is at a 9-year high.

We are not going to “grow” our way out of this debt problem. No one in Washington is talking about this problem because the solution is too painful and the consequences for our country, if we don’t do something, are also painful. It’s easier to talk about kneeling athletes or what effect a pipeline might have on an obscure fish species than to talk about cutting federal expenses including entitlements. And it’s certainly easier than talking about raising taxes and replacing a tax system where almost half of all taxpayers don’t contribute anything.

The consequences for continually borrowing more and more is that sooner or later the people and countries that buy our treasury securities are going to demand a higher rate of return because as our debt rises so does the risk that the U.S. might default on the debt. It’s also possible that no one will want to buy our treasury securities at any price. That’s when the federal government runs out of money and we all know what that means.

It’s time to begin bi-partisan work on the federal debt!

 

1https://www.nytimes.com/2018/10/15/us/politics/federal-deficit-2018-trump-tax-cuts.html
2http://www.worldometers.info/world-population/us-population/
3https://www.bloomberg.com/news/articles/2018-09-13/u-s-budget-deficit-swells-to-898-billion-topping-forecast
4https://www.marketwatch.com/story/81-million-americans-wont-pay-any-federal-income-taxes-this-year-heres-why-2018-04-16

These are the opinions of Mike Berry and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.

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