The federal government’s fiscal year ended September 30, 2024, and spending is once again in the spotlight. In this hotly contested political climate, candidates are using the power of the purse, promising tax breaks and other monetary benefits to select groups to garner votes. As a result, the fiscal-year deficit and national debt are rising. At present, the national debt is nearly $36 trillion, federal spending was $6.75 trillion, and revenue was $4.9 trillion. This resulted in a budget deficit of over $1.8 trillion.
Federal Spending
Federal government expenditures fall into two main categories: mandatory or discretionary. Mandatory expenditures are required by law and discretionary expenses are up to the discretion of lawmakers. Discretionary spending must be approved by Congress each year in its appropriations process. Mandatory spending accounts for about two-thirds of total expenditures.
What were the federal government’s largest expenditures? According to the Treasury Department the top five expenditures during the most recent fiscal year were: Social Security at $1.46 trillion; health at $912 billion; net interest on the debt at $882 billion; Medicare at $874 billion; and the national defense also at $874 billion. With total expenditures of $6.75 trillion, the top five expenditures comprised about 75% of the total. Moreover, in the most recent fiscal year, total expenditures were up $617 billion or 10% higher than the prior fiscal year.
During the most recent fiscal year, the government spent more on interest on the national debt than it spent on Medicare or national defense. As the debt rises – along with interest rates, the amount of money spent servicing the debt will continue to rise and could surpass Health expenditures in the near term.
The following chart contains total federal expenditures for each fiscal year from 1966 through 2024. As the chart illustrates, federal government spending increased during the financial crisis, then fell slightly. During the pandemic federal spending surged, fell slightly, then rose again. With the pandemic behind us, why did expenditures rise so much in the most recent fiscal year? When the federal government spends, it increases demand, which stimulates the economy. Since 2024 is an election year, politicians feel compelled to spend more to get elected. It seems Congress is asleep at the wheel, spending with no concern for the nation’s financial solvency.
Federal Budget Shortfall-Surplus
When you compare fiscal year revenue to expenses, the result is a budget surplus or a shortfall. Budget surpluses have been extremely rare. In fact, the last time the federal government had a budget surplus was during the Clinton administration when Republicans held the majority in Congress (see the following chart). Federal spending rose sharply during the financial crisis, then fell when it ended. During the financial crisis, the deficit peaked at $1.4 trillion for the fiscal year ending September 30, 2009, then fell to $442 billion during fiscal year ending September 30, 2015. During this six-year period, spending rose by $174 billion, but revenue rose by $1.14 trillion. Thus, the budget shortfall fell by nearly a trillion dollars.
Spending during the pandemic was notably different. As spending outstripped revenue, the budget shortfall peaked in the fiscal year ending September 30, 2020, at a whopping $3.13 trillion. The shortfall fell to $1.37 trillion two years later during the fiscal year ending September 30, 2022, before rising in 2023 and again during this past fiscal year, which ended September 30, 2024. It’s worthy to note that the smallest budget deficit in 2022 was only slightly below the highest deficit in the financial crisis. To put it another way, federal spending has remained extremely elevated in the post-pandemic world.
The Way Out of Debt
How do we get out from under this surging debt? There are only two ways to reduce the debt to a manageable level. We can raise taxes or grow the economy. The best answer is a combination of each. To stimulate the economy, we must reduce the regulatory burden on American businesses. Lowering taxes will also help the economy as it allows more money to remain in the private sector, which is critical to a thriving economy. Federal spending is out of control and will remain so until the American people speak up.