Originally published March 2023

Federal budget hawks are in a pickle. Having predicted nine out of the last zero debt crises, those of us worried about the trajectory of US government spending have the inevitable task of convincing the public that this time is different. It’s going to be a tough sell, but we have to try. Uncle Sam’s spending binge is unsustainable. It can’t continue forever, and it won’t. Our time is running out.

According to the Congressional Budget Office’s projections, the 2023 deficit will total $1.4 trillion. It will average $2.0 trillion per year for the next ten years. US indebtedness, already at record levels, will inevitably rise. Federal debt already exceeds 120 percent of GDP. If spending trends continue, debt will rise to 195 percent of GDP in thirty years. These numbers are unprecedented in America, even in wartime.

There’s no guarantee that the United States can sustain debt levels this high. Bond markets could get spooked well before mid-century. If so, woe to the global financial system! The immense number of portfolios built upon a “risk-free rate of return” from Treasuries will take a horrible beating.

We can’t tax our way out of the fiscal hole. For the past fifty years, tax revenues ranged from 14 percent to 19 percent of GDP. Despite significant variation in the tax code over that time, it seems there’s a relatively narrow window for federal receipts, determined by the underlying structure of the economy. Prudence dictates we treat 20 percent of GDP as the absolute maximum for government revenues.