According to a recent report by the U.S. Government Accountability Office (GAO), Congress is continuing to spend more money than it collects in taxes, resulting in an unsustainable long-term fiscal path for the federal government. The report found that in fiscal year 2022, the federal government spent $6.27 trillion but only collected $4.9 trillion in revenue, resulting in a $1.38 trillion deficit.
The federal government has only had a surplus in its budget five times in the last 50 years, with the most recent being in 2001. Experts warn that overspending at the federal level is unsustainable and has been known by economists and politicians for a while. The current debt to GDP ratio of the United States ranks it as one of the highest in the world, with an under-reported debt of over $200 trillion due to unfunded liabilities.
Experts suggest that most of what the U.S. is spending money on is current consumption (transfers) rather than productive investments, and that debt can only be undertaken if it is used for productive investments. The federal government is moving toward a situation where debt service cost can potentially become the biggest budget item of the U.S. government.
While most Americans understand that you can’t sustainably spend more than you earn, few appreciate the size or source of the issue. Balancing the federal budget would require some combination of deep cuts to Social Security, Medicare, and Medicaid spending along with much higher taxes. The growth of spending on Medicare, Medicaid, and Social Security is a major factor in the problem, and experts suggest that a national value-added tax (VAT) may be the only realistic alternative to solving this future crisis.
A VAT is a consumption tax paid at every stage of a product’s production, from the sale of the raw materials to the final purchase. Unlike U.S. states’ sales taxes, which are paid by consumers at a product’s final point of sale, a VAT would be paid at every stage of production.
The GAO’s 270-page financial audit also noted ongoing problems with the accuracy of the government’s bookkeeping, due to long-standing financial management issues at the Department of Defense and inadequate accounting for transactions between government agencies. The report further outlined problems with the Small Business Administration’s pandemic relief programs, the Department of Education’s loan programs, and $247 billion in improper payments.
An improper payment is a payment that should not have been made or was made in the wrong amount. Improper payments include overpayments, underpayments, and payments made to the right recipient in the correct amount but not in line with regulations. The GAO report highlights the need for the federal government to address these ongoing financial management issues and improper payments to ensure that the government’s financial statements are accurate and reliable.
In conclusion, the GAO’s report is a reminder that the federal government’s overspending is unsustainable and that there is a need for the government to address ongoing financial management issues and improper payments. Experts warn that balancing the federal budget will require deep cuts to Social Security, Medicare, and Medicaid spending, along with much higher taxes, and that a national value-added tax may be the only realistic alternative to solving this future crisis.
