Since the pandemic hit last year, the Federal government has gone on a massive spending spree, driving budget deficits and the federal debt to unprecedented levels. The numbers are staggering so let’s break them down to make them a little more understandable.
Congress has authorized about $6 trillion in pandemic related spending so far and the Congressional Budget Office was estimating budget deficits for 2020 and 2021 to total $5.4 trillion—before the latest $1.9 trillion bill was enacted. If we divide the $6 trillion by the US population of 333 million we get $18,180 for every man, woman and child so, for a family of four, that comes to $72,727.
The total federal debt as of September 30, 2019 was about $22.7 trillion but will likely approach $30 trillion by the end of this year. That would put the share of the national debt to $364,000 per family of four. Of course, we don’t have to pay off the debt, not that we could, but at 3% interest the annual interest costs would come to almost $11,000 for our small family.
The latest figures from the IRS show that the top 10% of taxpayers paid 71.4% of the federal income taxes. If we assume the top 10% (2018 AGI of at least $152,000) will be responsible for 71.4% of the extra $6 trillion in spending, their share comes to $343,000 per taxpaying household.
In 2020, federal income tax revenues totaled $1.6 trillion (excluding FICA taxes that fund Social Security and Medicare). Corporate taxes came in at $212 billion and other revenues added $289 billion for total revenues of $2.1 trillion. To put the $6 trillion in spending in perspective, it’s like a family making $100,000 per year borrowing almost $300,000 to get through the pandemic.
Of course, we can just tax the rich, right? Unfortunately, the Forbes 400 Wealthiest Americans were only worth an aggregate of about $3.2 trillion in the latest ranking and those who didn’t make the cutoff each had just $2.1 billion or less.
Higher taxes seem to be a given to keep the US government solvent in the years to come, but inflation is likely to be another cost. As the Fed prints more dollars, they become worth less. If inflation jumps by 2% per year, that effectively reduces the purchasing power of a $1 million portfolio by $20,000 per year. And earning a 2% lower investment return due to slower economic growth or lower interest rates would cost another $20,000. The pandemic may be almost over but the costs of the massive spending will be felt for many, many years to come.