America’s Soaring Budget Deficit: Unemployment, War Costs and the Pandemic Drive Fiscal Challenges

The US government is currently facing a major budget deficit, with spending exceeding tax revenue by $2 trillion in the past year. Despite this, the deficit is not due to a recession or stimulus spending but rather reflects America’s longest period of low unemployment in fifty years. However, the deficit has been above 3% of GDP since 2015 and is expected to surpass 100% of GDP next year.

A combination of factors such as war costs, the global financial crisis, and COVID-19 have contributed to the rising deficit. Unfunded tax cuts and stimulus programs have only worsened the country’s fiscal challenges. While both Republicans and Democrats claim to prioritize fiscal responsibility, their actions often contradict their words.

The next president will face a crucial decision regarding renewing President Trump’s tax cuts from 2017, which could further worsen America’s fiscal outlook. In the past, near-zero interest rates made managing large debts more manageable. However, with rates now higher, more money is being spent on servicing debt than national defense. This shift in interest rates has added urgency to addressing America’s growing deficit. If no decisive action is taken soon, the country’s fiscal trajectory will deteriorate further and pose a significant economic challenge for future generations.