What’s driving the US budget to the brink?

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It is impossible to even look at this question without recognizing its very partisan nature, because in the US this question takes on the aura of something more than a logistical or numerical dilemma. It is philosophical to the core, a debate within liberalism and realism. 

Within the confines of this liberalism and realism, we are dealing with both a liberal order and one that in reality exists. And so proposals, relating to questions like the US’s budget, are all going to combine, in a haphazard and uneven way, some combination of pragmatic proposals justified within the language of liberal political-economy. – JF 

By the numbers, there exists a massive $21 trillion debt and some would attribute exuberant government spending as the root cause of what is leading the US into an overwhelming budget crisis. Congress previously had warned that the solution to the problem should be found in less than 10 years but acknowledged that it will not be possible to achieve optimization of spending in such a limited period.

The main danger is that the main portion is federal government debt. The state takes out new loans to pay for the old ones; debt continues to rise and the US currency seems less attractive to investors.

Republican Congressman Andy Biggs, in an interview with Fox News, pointed to disproportionately high budget expenditures. He recalled that budget allocations should not exceed US $700 billion, but by 2018 they had reached US $1.3 trillion.

“It will be possible to devalue money, decree bankruptcy or try to raise taxes and kill the economy. These are our prospects in eight or ten years,” said the congressman.

Why is there such a budget deficit in the US? A sharp increase in spending came after the Sept. 11, 2001, attacks when Washington declared the War on Terrorism. From 2003 to 2011, the deficit doubled from US $437.4 billion to US $855.1 billion. The state has large military spending, which amounts to about $900 billion a year.

As a comparison, in second place comes health and social security, with only US $69.5 billion.

Finally, the current tax reforms of US President Donald Trump has at face value worsened the situation, making life easier for companies but decreasing revenue. The thinking here though is that freeing up these obligations would inspire investment, and therefore growth. While in some normative modeling, this bears out, economic history and as well the present conditions, seem to indicate that another range of solutions may be in order.

It is expected that this year the US public debt – national debt, excluding US government bonds – will reach 78% of GDP. And in ten years, according to the Congressional Budget Office calculations, this figure will reach 105% – the highest level since World War II.

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“The trillion dollar deficit is impressive, especially in the absence of a recession or financial crisis, forcing the country to spend far more than it earns,” analysts at CNN Money note.

The experts suggest that this scenario will continue and that the fault is the actions of the congressmen in previous years. It is concluded that, in 2011, Congress failed to negotiate to reduce the budget deficit.

As a result, the plan proposed by a special legislative committee and the projected reduction of the budget deficit by at least $1.5 trillion over the next ten years is still on paper.

Another aspect is that now, to get out of this trajectory, this will require very difficult decisions: to increase taxes and cut costs, especially in the social sphere. Lawmakers are unlikely to agree on this because such austerity measures will lead to serious political losses, local media reports.

The budget deficit does not necessarily mean a crisis. At the moderate level, on the contrary, it contributes to economic growth because it “invests” more money in companies and in households. Rising consumer spending boosts the economy. With this in mind, other countries voluntarily lend capital to the US government because Washington always pays its debts.

Fears arise when debt approaches 100% of GDP. This is cause for concern – there can be no situation where the country is unable to pay its debts.

But these risks are increasing. In 2017, the US national debt reached 108% of GDP, and in 2023, the International Monetary Fund (IMF) estimates that there will be an increase to 117%.

In turn, Russia’s public debt is among the lowest in the world – now standing at $525 billion, equivalent to 18.7 percent of GDP. According to IMF estimates, in 2023 this figure will reach 20.4% – a very moderate debt burden. In addition, Russia reduced the budget deficit to almost zero. Last year, spending exceeded revenues by 1.5% of GDP. This year Russia expect a surplus.

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