Kyle Sammin: Running out of other people’s money

Margaret Thatcher said that “the problem with socialism is that you eventually run out of other people’s money.” America’s multi-decade, bipartisan attachment to fiscal irresponsibility has taught us that that can happen in capitalist countries, too.

The Trump administration’s “Big Beautiful Bill” recently passed the House and is now under consideration in the Senate. It has some good points — like keeping the reduced tax rates of 2017 in place — and some bad — it does not cut spending nearly enough to offset those lower rates. And it has some really bad — the increase in the deduction for state and local taxes (SALT) that serves almost exclusively to benefit upper-income taxpayers in states with high local taxes (i.e., rich guys in states run by Democrats).

We used to think that deficits should be rare. In a war, or an economic depression, the government might have to resort to spending more money than it had. By the 1930s, British economist John Maynard Keynes and his disciples even said it would be a good thing to overspend in such times, and then to pay off the debt by running surpluses when times were good.

This was clearly too much freedom for politicians to handle, because look around: There is no war, no recession, and no pandemic. Yet we are spending more than ever and absolutely refusing to pay for it. Is it any wonder that America lost its last remaining AAA credit rating last month? Bond markets will tell you the truth even when you wish to close your eyes to it, and the consensus among investors is now that there is a non-zero chance America will not be able to pay back the massive debt we’re accumulating.

What we have is a spending problem, not a revenue problem. 

As the chart below shows, federal revenue has more than doubled since 2000 (the last time we had a balanced budget) from $2.03 trillion to $5.04 trillion, an increase of 148 percent.

Spending, meanwhile, has more than tripled, rising from $1.79 trillion in 2000 to $6.88 trillion in 2024 — an increase of 284 percent. 

When you compare these figures to GDP — a more useful task than looking at the raw numbers free of context — a few things become apparent. The first is that the 2000 budget surplus was not easy to replicate. The spending cuts by Bill Clinton and the Republican Congress of the 1990s helped a great deal, but the dot-com boom of the late ‘90s acted as a windfall to the government. A lot of people got rich and paid taxes on it, giving us the highest revenue as a share of GDP since World War Two — 19.75 percent.

That was never going to last, once the tech-stock bubble burst. We also reduced it on purpose with tax cuts. They were needed at the time, and the lower rates helped spur our economic growth in the years that followed, but even if we had kept the tax rates the same, the wars of the early 2000s would probably have resulted in small but persistent deficits. The 2008 recession would have made this worse, and Obamacare would have exploded it. That all happened, it was just a bit more pronounced because of the Bush tax cuts.

All of which is to say, we can’t just tax our way out of it. We should not be cutting taxes any more than we already have — especially on the top brackets — but going back to 1980s tax rates (or worse) will still leave us with a deficit while also putting a serious drag on our economy.

So let’s look at the other side of the ledger: spending. We’ve established that federal spending is up, and this next chart shows that it is even swiftly outpacing the growth in GDP. That is to say, the economy has grown, but spending has grown even faster.

In 2000, we were spending the lowest share of GDP in decades, 17.45 percent. Even after Medicare Part D and Obamacare added permanent costs to the budget, that share was around 20 percent for much of the 2010s. Bad, but not awful. It shot up during the pandemic years, but even with that over, the most recent figure is 23.13 percent of GDP.

We have added as much to the budget (relative to GDP) in the past decade as we added in the fifteen years before that. And this is as the wars were winding down, the economy was recovering, and the pandemic was subsiding. This was supposed to be the time to pay back the debt of Covid times. Instead, we’re piling on more.

One final graph shows the heart of the problem and why it is getting worse: the amount of interest we pay on the debt as a share of GDP.

It’s the highest it’s been since 1991 and it’s only going to get higher. 

In raw numbers, it’s even more striking. As I write this, the total debt is $36,219,354,293,715. It will be higher by the time you read it. That’s $106,112 per American citizen.

This is the real death spiral of deficit spending, because the more we deficit-spend, the more we have to repay. The more we owe, the worse our credit rating gets, which means that new borrowing will be at an even higher interest rate. We’re paying off the low-interest borrowing of the early 2000s with new high-interest borrowing today. 

That year, 1991, was significant in that it saw the rise of Ross Perot’s third-party movement. Perot focused on two issues: the loss of jobs to free trade and the perils of deficit spending. He made an impact with the second point, for a time, and both parties got America’s finances squared away in the 90s. Then, they all chose to forget everything they had learned.

Perot’s opinions on trade are bearing fruit today — it’s no coincidence that Trump was a member of Perot’s Reform Party for a time — but his thoughts on deficit spending go unheeded. Conservatives want to grow our way out of it, making the country richer through business-friendly policies. Lefties want to tax our way out, making our progressive tax system even more imbalanced while squeezing more money from anyone who has any.

Neither wants to meaningfully reduce spending.

The truth is, it will likely take all three approaches at once to get us out of this hole. We need to keep cutting regulations to make our economy grow, something Trump was very good at in his first term. We also need to stop expanding tax deductions that only rich people take (we should even start rolling these back). 

But most of all, we need to stop the deficit spending. A massive welfare state in a peacetime, booming economy is not just unnecessary: it’s deadly to the country’s financial future.

Kyle Sammin is the managing editor of Broad + Liberty.