Stop Digging Now!
Economizer Original - Special Edition #102425
Our government is in a deep hole, so please stop digging.
For fiscal year 2025 deficit was $1.8 trillion — one of our largest.
Our rising national debt (hole) threatens our economic future. The problem is serious, but math is simple: every year we spend more than we take in.
The mismatch between spending and revenues adds trillions to the national debt, weakening our economy and adding a burden on future generations.
A big issue was lowering the interest rates. Fed Chair Powell was hesitant to do so. But what many don’t realize is that as debt rises, so do interest costs. If more money is going to pay interest on our massive debt, other needed programs are going to have less money.
Four big problems for the national debt:
1. Demographics — The Aging Population
A major driver of rising federal spending is the aging of America’s population. With the retirement of the baby-boom generation and increases in life expectancy, the number of people age 65 and older is increasing much faster than the working-age population. Too many old people are putting significant financial stress on Social Security and Medicare.
1. Rising Healthcare Costs
We have the most expensive healthcare system in the world, but we are far from the healthiest. Our health care spending in the United States is nearly twice the average of other wealthy countries — yet our health outcomes are generally no better than those of our peers. In fact, in some cases the outcomes are worse, including areas such as life expectancy, infant mortality, asthma, and diabetes.
Consequently, without reform, the federal budget will bear the unsustainable cost of rapidly growing healthcare bills.
2. Increased Interest Costs
As the national debt grows, so too does the cost of servicing that debt. Interest costs are currently the fastest-growing “program” in the federal budget — exceeding the growth of Social Security or Medicare. This cost will total $13.8 trillion over the next decade, according to the Congressional Budget Office. Interest costs are like paying more for the past than for the future, as they crowd out the nation’s ability to invest in other priorities, like education, transportation, or research and development.
3. Inadequate Federal Revenues
The U.S. tax system does not generate enough revenues to cover the spending levels lawmakers have approved. Perfect case for stopping the digging!
As an accountant, our tax code is:
4. Overly complex,
5. Confusing,
6. Inefficient,
7. Unfair.
For example, it remains riddled with tax expenditures, or “tax breaks,” that provide financial benefits to specific activities, entities, and groups of people. Those tax breaks, which totaled nearly $1.9 trillion in 2024, increase annual deficits and can create market distortions that are damaging to economic growth and productivity.
Let’s face it, folks, taxes will rise, and the stock market will have to correct. If you think we can continue to spend more than we take in forever, and the markets will keep growing, then you’re living in a dream.
The good news is if you are young enough, you should take advantage of any market corrections by building cash reserves to buy into the markets as they go through their corrections. Especially taking advantage of Roth’s tax-free growth
If you are unable to build up some cash reserves, then sit tight and don’t panic with any corrections. You have time on your side for the markets to come back!
If you’re older than it makes sense to build a moat around your savings. Yes, alligators are suggested for the moat. Don’t build a moat, and you will get overrun. Listen, take volatility risk off the table before it’s too late. Time to recover is not on our older backsides.
PS: One has to remember that the tax codes are written in pencil and can be easily changed! And change it will!
Steps to do today: