This week for the first time in U.S. history, the cost of interest on the national debt passed $1 trillion annually. This means that for every $5 the U.S. Treasury takes in, it pays $1 (20%) for interest on the debt. It also means that, in a given year, one out of every five dollars you pay in income taxes does not go to provide you government services. It goes to pay the interest on the government’s debt.
Recently, Democrats have raised the specter of doom and gloom whenever deadlines draw near for raising the debt ceiling, arguing that Congress must borrow more money, expanding the debt to satisfy its lust for spending.
That Congress would raise the debt ceiling and add new borrowing to allow for new spending over the last two years makes no fiscal sense whatsoever. Since 2018, federal revenue has ballooned by 46 percent. In FY2022, federal revenue reached a record $5 trillion. Why on earth would anyone be talking about borrowing more money when the federal government is awash in cash?
How is it possible that 46 percent more revenue is still not enough?
One reason is that Democrats simply cannot acknowledge the cause of this massive influx of new federal dollars. That’s because this revenue is the result of the so-called “Trump Tax Cuts” of 2017. As it has every time it has been done, a reduction in federal tax rates led to increases in federal revenues. But this time, those increases were enormous.
The new tax rates took effect in 2018, meaning they began to appear in federal revenue data in 2019. The $3.3 trillion in revenue in 2018 grew to nearly $5 trillion in just four years. Mind you, this occurred despite the downward economic pressure of the COVID pandemic.
In calendar year 2021 alone, federal revenue jumped an unheard of 25.7 percent. This is a staggering amount of unexpected new cash. $1.5 trillion extra dollars to be exact, in one year.
A logical person would have been excited about the tremendous opportunity to use this cash to pay down the federal debt in the same way a homeowner might use unexpected new cash to pay down their mortgage or car loan, or retire their student loans.
But not so our Congress. They simply ramped up spending to an extent that exceeded the unheard of growth in revenue.
Here’s a sampling of denial from predictions about the Trump Tax Cuts from 2017.
“The Joint Committee on Taxation (link) estimates that enacting the bill would reduce revenues by about $1,438 billion over the 2018-2027 period.” Wrong: From 2018 to 2022 revenues are up $1.538 trillion. So far, the estimate is off by $3 trillion.
Senate Democratic Leader Chuck Schumer: (link) “Lower revenues and higher deficits resulting from the tax overhaul will prompt Republicans to call for cuts to social safety net programs.” Wrong: Record high revenues have followed the lower tax rates.
The Tax Foundation (link): “The plan would increase federal tax revenues by $908 billion over the next decade.” Wrong: Over the first four years alone, revenue increased by $1.5 trillion.
Brookings (link): “The new law will reduce federal revenues by significant amounts.” Wrong: Revenues have achieved record highs in multiple years.
And the prize for most outrageous claim about revenues after the tax rate cuts goes to the Biden White House which, just last month claimed, “a decline in major tax revenues was the largest driver of the increase in the deficit from 2022 to 2023.” This just in: The White House also claimed that up is down, black is white, and one equals two.
According to Biden’s own U.S. Treasury, the opposite is true. With revenue at all-time record highs, only spending can be blamed for increases in the deficit.
Important fact: Tax rates have nothing to do with spending.
According to the Congressional Budget Office, there was a 21 percent INCREASE in revenue over fiscal year 2021. That’s the opposite of what they predicted. If revenues reached record highs in 2022, then the only way the deficit could have risen is if spending also met and exceeded the same record highs.
Here in Maine
Like its federal counterpart, spending by state government has also skyrocketed since Governor Mills and Democratic majorities in both houses of the Legislature took control of the purse strings in 2019.
The budget that was in effect in 2019 totaled $3.83 billion. Of this, $1.70 billion came from “Individual Income Taxes.” The current state budget collects $5.26 billion in revenue. Of this $2.43 billion comes from income taxes.
As they did in 2021, Democrats stiff-armed the State Constitution in 2023, locked Republican out of the process, and passed a completely partisan budget. Over the two consecutive biennial budget cycles, Democrats raised the tax burden on Mainers by more than 34 percent in just four years.
Recently, the U.S. Bureau of Economic Analysis released data showing that while nationally, personal income rose by 5.3 percent, here in Maine it fell by 2.7 percent. This means that the largest category of revenue in the state budget, Individual Income Tax, is likely to drop significantly by the time the next budget is ready to put together.
New state spending included an expansion in the number of state workers, entirely new state agencies, and many other expenditures that are now installed into the annual baseline budget so that they must be funded year after year going forward.
The problem with that premise is this—the revenue that has rolled into state coffers over the last two budget cycles has largely been the result of one-time federal COVID spending that will not provide funds in any future budget year.
From 2020 to 2022, the federal government flooded Maine with $17 billion in COVID-19 program funding. By the way, every dollar of this added to the federal deficit. In fact, $4 trillion in COVID spending is largely the reason for the growth in the federal deficit.
Instead of spending on more of everything, the State Legislature could have decided that we were going to spend this excess cash on our transportation infrastructure, upgrading our roads and bridges. This would have reduced the need for future spending in a number of ways. Generally, the longer you wait to repair a bridge, the more costly that repair becomes. Doing it now would have saved future costs. Second, much of our transportation work is funded through borrowing which adds interest payments. Paying cash now would have saved a small fortune in interest going forward.
Without billions in COVID aid from Uncle Sam, and with collections against income dropping, the next state budget will be a painful reminder of what happens when the only people making funding decisions are those who cannot bring themselves to stop spending other people’s money.