The Nonpartisan Congressional Budget Office (CBO) released a study last week showing that our deficit spending for Fiscal 2024 would equal 99% of our Gross Domestic Product (GDP). The study also predicted that in ten short years, our deficit would balloon to 122% of GDP.
The study also projected that our deficit for 2024 would be 27% higher than earlier estimates had predicted. The main differences in the newer numbers include…
1 – Higher than expected costs for military aid to Ukraine and Israel,
2 – Higher than expected costs for reducing student loan balances,
3 – And increased spending to the FDIC for last year’s banking crisis.
Let’s not act like this is a partisan problem. Wherever your political beliefs happen to lie, please realize that both sides of the aisle approved the majority of this spending.
Let’s take a moment and think about all of this.
If you owned a company that did $10M in sales while carrying $9.9M in debt, how long do you think you’d stay in business? What if you had $10M in sales while servicing $12.2M in debt?
Many Americans act like the deficit isn’t a problem. It’s one of those problems we’ve had our entire lives that no one worries about, but the implications are frightening.
1 – The projected deficit for this year alone is 7% of our GDP. How long would you stay in business if you showed a 7% loss every year?
2 – By late 2034, our Federal Debt is projected to exceed $50T. That’s almost twice what it was last year.
3 – In the same year, our government would spend 40% of what it collects servicing that debt.
Given the increased risks associated with our debt as time goes on, how much will the interest rate we pay on these bonds need to increase further exacerbating the problem? Also, given the increased risks, who would be willing to buy the newer debt?
The main purchaser of our bonds used to be China. They haven’t bought any of our notes for a very long time.
Please understand that just because our government can print money, doesn’t mean that this isn’t a problem.
And those numbers would be in place if the Tax Cuts and Jobs Act Provisions were not extended by the end of 2025. If TCJA were extended, those deficit numbers would be much worse.
Let me leave you with this…
Many don’t know that there have only been a few instances in the life of our nation when any of our federal debt was actually repaid. Given this fact, why aren’t more people worried about it?
Because it’s like watching a building in your rearview mirror as you drive away. The building doesn’t get any smaller, but it looks smaller as you drive away. The same thing happens to our perception of the debt as our economy grows.
But that was then and this is now. Just like most companies that are addicted to borrowing, our country’s debt will now exceed our sales.
The question now becomes, what will our newly elected President and Congress do next year in response to this growing problem? There are two things that will need to happen.
First, our country’s borrowing abilities end on New Year’s Day. The Debt Limit will need to be extended by January 1st of 2025 in order for our bills to continue getting paid..
Second, they’ll need to decide what to do about TCJA. If it’s extended and they sign a budget for 2025 with a similar deficit, the debt will balloon even further out of control.
I’ve written several pieces in the past year about the coming fight over income taxes that’s ramping up for next year. This newest forecast by the Congressional Budget Office, makes the outcome of that battle even more important.
We’re all going to get through this. Let’s get through it together.
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