Late last week, the federal government of the United States issued its annual financial report. The report arrived, as it usually does, to deafening silence. Meanwhile, the American Rescue Plan of 2021 and related legislation under consideration have only amplified the disturbing trends evident in the results for fiscal year 2020.
From 2015 to 2019, the reported budget deficit of the federal government more than doubled, reaching nearly $1 trillion. A better measure – net operating cost, an accrual rather than cash-based deficit reading – nearly tripled over the same time frame.
But 2020 brought a blowout. The reported budget deficit tripled from $984 billion in 2019 to $3.1 trillion in 2020, while net operating cost mushroomed as well.
Over on the balance sheet, the federal government’s reported net position – assets less reported liabilities – fell by about $3.8 trillion to a (negative) $26.8 trillion, after deteriorating by “only” $1.5 trillion in 2019.
The federal government has been warning for years that its fiscal path is unsustainable in this report and it repeated those warnings again. The fiscal gap – an estimated amount of spending reductions and/or tax increases required to keep the debt/GDP ratio from rising unsustainably in the future – mushroomed as well, as the government did the opposite of what was required to keep things sustainable.
We will be releasing our updated Financial State of the Union report soon, which is based on the annual financial report. It isn’t likely to be a pretty picture.
As in previous years, however, the federal government offered the following comforting sentences while introducing a balance sheet in which (understated) reported liabilities swamp reported assets by more than $25 trillion.
There are, however, other significant resources available to the government beyond the assets presented in these Balance Sheets. Those resources include stewardship PP&E in addition to the government’s sovereign powers to tax, and to set monetary policy.
Our federal government certainly has the power to tax, under our Constitution. But here we are, in a document theoretically securing the accountability of the government to the people, and the government is telling We the People – the sovereign, under our Constitution -- that We don’t have to worry about it because it possesses the sovereign power to tax us and to inflate the value of our money away.