ASSET ALLOCATOR SPOTLIGHT

November 2023

We often hear in news reports or economic updates that the US Federal Government spending deficit is around 6% today. Such a low percentage deficit sounds really manageable, right? So, why the worry?

That 6% deficit figure is a percentage of U.S. GDP. Calculating debt and deficit ratios as a percentage of GDP has emerged as a useful gauge of sovereign debt for relative comparisons over time and between differing national economies. The deficit-to-GDP ratio also serves as an indicator to evaluate the sustainability of government financing.

This metric fails to adequately illustrate the size of our spending deficit. Illustrated in the graphic below, the total receipts received by the Federal Government were approximately $4.4 trillion in fiscal year 2023. Meanwhile, total outlays exceeded $6 trillion during this time period. In other words, the U.S. government is running a deficit that is over 30% per year if comparing total spending to total inflows.

Perhaps equally alarming is how the federal government is spending money. Social security, national defense, and interest payments alone exceed $2.8 trillion combined, or 63% of total inflows. These expenses are not trending lower any time soon. Now, add in health and Medicare payments and spending has exceeded total receipts already.

In other words, little of the discretionary spending that Congress likes to fight over is actually covered by taxes: it is all borrowed money. And it’s the reason total debt has doubled in 10 years to $33 trillion today (representing 7 times annual inflows, or 1.2 times annual GDP).

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