Visualizing the FY2021 US Government Budget and Current Financial State
Have you ever wondered where your tax dollars go? How the government makes money?
Recently, President Trump released the FY2021 government budget. Politics takes over as Democrats jump on the massive spending and defense budget as irresponsible and unsustainable and Republicans praise the budget as an economic stimulus.
What’s the real story? What does the data say? Where is the money coming from and going? What is the fiscal State of the Union?
Use this dashboard to interact with the data yourself and read on for more details.
Revenue and Costs
In FY2021, the government expects a budget deficit of $589B, projecting ~$4.45B in spending and ~$3.86B in receipts.
Said another way, for every $1 the government receives, it’s spending $1.15; 75 cents of every incoming $1 is already spent through mandatory programs.
Running a deficit is not unique to this administration — there have been only 4 years since 1980 where government revenue has exceeded spend and the gap reached its peak during the most recent 2007–09 recession (shaded in the figure below).
Of the government’s ~$4.45B in spend, ~66% is allocated to programs designated as “Mandatory”, which predominantly includes Medicare and Medicaid (Department of Health and Human Services / HHS) and Social Security. Visit the dashboard and hover over each box in the Treemap for additional spend details.
Within the discretionary spend, about 40% (~$640B) is allocated to Defense, with the next highest categories being Veterans Affairs (~$105B), HHS (~$96B), and Education (~$66B).
Transitioning to revenue, individual income tax accounts for ~50% of the government’s expected revenue, followed by Social Insurance taxes (~35%) and Corporate Income Taxes (~7%).
One potential reason that income hasn’t been able to keep up with spend is that the main income revenue driver — individual income taxes — has decreased as a percent of household income over the past 3 decades, with a notable dip following President Trump’s recent tax cuts.
Further, the third most important source of revenue, Corporate Taxes, has dramatically declined. One measure of the effective corporate tax rate — taxes paid on profits — has decreased by ~66%+ since 2000.
Taken together, two of the three key sources of government income are being collected at a lower rate. This means that at least a portion of any growth — if it exists — in corporate profits or household income that would go to the government is offset by the decline in tax rates.
Debt and Deficit
It follows that if spend is consistently exceeding revenue, then the government is running at an annual deficit, leading to increasing debt.
As a quick primer, deficit is the difference between what the government receives as income and spends in a given year; debt is the cumulative amount of money that the government has borrowed and owes to its lenders.
The government has been on a multi-decade run of increasing the national debt on both an absolute and relative (to GDP) basis. The most recent figures show national debt exceeding $25T — which is equivalent to ~2x the total revenues of Fortune 500 companies —and more than 106% of GDP.
Debt to GDP has historically been the metric upon which countries are judged for their borrowing, with ~100% being a “threshold” for too much debt.
However, I believe GDP isn’t the right metric to judge on, at least for the US. As shown earlier, revenue is ~16% of GDP. This implies that it would take more than 6.5 years of paying every single dollar of revenue toward debt, never mind the fact that 1) this is impossible and 2) the government continues to run a deficit every year.
It’s hard to see how this money can ever be paid back in full without dramatic changes.
Another emerging concern is the increasing amount of US debt held by foreign governments. The data shows that this group represents the largest portion of current debt holders, with a notable increase since the recession.
The US Government is fortunate that interest rates are at historic lows or the problem of debt would (and someday, could or will) create an even bigger burden on the country.
So, what’s the Fiscal State of the Union? The data says not too good.
Spend is exceeding revenue and no President has consistently found a way to reverse the trend. The longer-term indicators are likewise not telling a positive story. Current taxes — though none of us necessarily want them to go higher — cannot sustain the rate at which the government is spending.
National debt has always been a “problem for another day”. While the government’s credit rating remains high, there’s a belief that new money can be borrowed in order to pay off maturing debt. “Another day” will come when either the full bill comes due or that faith is lost.
I encourage you to check out the dashboard to see more detail on the spending, revenue, and fiscal health of the government. I’d love to hear from you with your thoughts on the situation and any additional data that you think is relevant to the discussion.