America is currently facing a major deficit, with the federal government spending $2 trillion more than it has raised in taxes over the past year. This deficit is not the result of a recession and stimulus spending, but rather a reflection of America’s longest period of low unemployment in fifty years. Despite this, the deficit has not been below 3% of GDP since 2015, and the country’s net debts are expected to surpass 100% of GDP next year.
The rising deficit can be attributed to a combination of factors, including the costs of 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. Both Republicans and Democrats claim to prioritize fiscal responsibility, but their actions in office 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 America’s large debts more manageable. However, with rates now higher, the government is spending more on servicing the debt than on national defense. This shift in interest rates has added to the urgency of addressing America’s growing deficit. Without decisive action, America’s fiscal trajectory will continue to deteriorate, posing a significant economic challenge for future generations.