The Worst Generation of Political Elites Ever
At every level of government in the United States, budgets are out of balance and getting worse. Blue states worse than red states — big blue cities worse still.
A close look at New York City, New York state, and the federal government shows the problem is far more perilous than it appears. It is three drunks holding up a lamppost, without the humor.
For the 2023 fiscal year, New York City is projected to collect $73.3 billion in taxes, and spend $101.1 billion. How does it close a $27.8 billion gap? The city receives grants from the state ($16.8 billion) and $9.3 billion from the U.S. Treasury. In other words, without largesse, New York City is bankrupt.
But where does the state get that money? Because, no surprise, it too is bankrupt without federal support — as in, it spends $222 billion, but only collects $135.9 billion. The Treasury — largely funded by red state conservatives — fills the gap with $89.7 billion.
In total, New York and New York City survive only by receiving federal grants totaling $99 billion annually.
But where does the Treasury get that money? This year, the U.S. will have collected $4.2 trillion and spent $6.0 trillion. Where does that $1.8 trillion come from? Borrowing and printing. Public debt now totals $30.6 trillion. Social security and all insurance funds are bankrupt. In other words, the whole house of cards is exactly that.
Has it always been like this?
Cast back to 2000, a mere generation ago, to what American finances used to look like. New York was significantly better run and the federal government operated with a balanced budget.
In 2000, New York City spent $36.0 billion, of which $25.1 billion came from taxes and other local revenues and $11.3 billion in funding from the state and the federal government. The City in those days ran a budget surplus, utilizing $2.1 billion in surplus from the prior year.
State spending totaled $79.7 billion versus $222 billion now — and, hard as it is to believe, $500 million was earmarked to pay down state indebtedness.
For that same year, the federal government took in $2.0 trillion and spent $1.8 trillion, yielding a $236 billion surplus.
Public debt totaled $5.7 trillion, or 55% of GDP, versus today’s $30.6 trillion, equal to 121% of GDP.
In other words, in one generation America’s finances have been ruined, at every level of government. From a fiscal point of view, this is undoubtedly America’s worst generation ever. In our brief case study: city spending went from $36.3 billion to $101.1 billion; the state from $79.7 billion to $222 billion; and the federal government from $2.0 trillion to $6.0 trillion — and the ultimate funding source, U.S. public debt, from $5.7 trillion to $30.6 trillion. Among economists it was understood, and widely agreed upon, that public debt should never exceed 70% of GDP. And yet here we are at 121%, higher than at the peak of WWII, rising rapidly, unsustainably, as far as the eye can see. The Congressional Budget Office forecasts 2052 debt at 185% of GDP.
And make no mistake. No amount of taxation can fix this problem, even leaving aside the ruinous impact of excess taxation on incentives, growth capital, innovation, personal freedom and prosperity. Again it is the numbers that tell the story.
Of New York City’s $73.3 billion in taxes, $15.3 billion is from personal income. You would have to triple income taxes to close the shortfall. For the state, personal income taxes total $67.3 billion, an eEven doubling the tax would not balance the budget. At the federal level, the individual income tax raises $2.0 trillion. So again, it would take a doubling in taxes to balance the budget. That brings total taxes to in excess of 100% of income.
It used to be said that sustained economic growth will cure all. But that is manifestly untrue when 1) every year, at every level of government, deficits require increased borrowing, 2) spending exceeds economic growth, and 3) government policy is relentlessly anti-growth, such as the ruinous U.S. energy program that increases the cost of fossil fuels without any viable replacement.
Since 2000, U.S. GDP has increased from $10.0 trillion to $24.5 trillion, or 2.5x. In the same time period, New York City and New York State spending is up 2.8x and federal spending 3x. Imagine on top of that, any sustained period of recession and low growth. Add in a major armed conflict or black swan event and the impact jumps from hair-raising to hell-fire calamitous, when even in a period of growth from 2000 to 2022 the federal debt increased an unconscionable 5.4x.
2050 has taken on talismanic significance for the climate change agenda. Far more attention should be paid to restoring U.S. finances by 2050. Bankrupt nations do not keep their promises: economic, social welfare, national security, or environmental. A single generation has wrecked the U.S. financial balance. It will take our very best next generation to make sure our children and their children have a country worth inheriting.
On a partisan note, it is worth mentioning that the fiscally responsible of 2000 were both Democrats (Clinton) and Republicans (Pataki), while the leadership villains of the past twenty years, with a vast supporting cast, were likewise from both sides of the aisle. The past four presidents have all signed omnibus spending bills; New York state is known for its Democrats (Spitzer, Paterson, Cuomo, Hochul); and the City, blame is on both sides, though Michael Bloomberg was not a bona fide Republican (Bloomberg, De Blasio, Adams). The 1985 and 1987 Gramm-Rudman spending constraint legislation, though a failure as an instrument of fiscal control, is a reminder that Congress in the not-so-distant past embraced at least the symbolic notion of bipartisan balanced budgets.
Looking ahead, the Democrats have embraced ever greater reckless spending, far, far to the left of anything imagined by the Democratic party of twenty years ago. Unless the party moves sharply back to its fiscally responsible roots, that leaves as the only practical hope passing the torch to a new generation of Republicans and with it a coalition capable of pursuing the sustained fiscal rebuilding of America. It is an agenda that will be supported by a broad cross section of Americans, without regard to race or class.
President DeSantis, a nation turns its lonely eyes to you.
Image: Free image, Pixabay license, no attribution required.