There has certainly been a lot of talk and debate about government mandates over the last couple of years since the onset of the COVID-19, coronavirus pandemic. We have dealt with vaccine mandates, mask mandates, remote school and work mandates, etc.
However, today I would like to address a different type of government mandate, namely, mandatory government spending. The government spends a significant and growing portion of the tax dollars they take in on mandated entitlement programs including Social Security, Medicare, and Medicaid.
When you look at the chart below you will see how significant the impact of this mandatory spending is, especially as the baby boomers age and the interest paid on our ever-growing national debt continues to balloon.
You can see that sixty years ago, mandatory spending accounted for approximately 1/3 of money the government paid out. This left 2/3 of tax receipts to invest in things that would generate future growth or infrastructure for the benefit of the residents of our country.
In what is a disturbing trend that shows no sign of reversing, that fractional amount has completely flip-flopped. We are now spending approximately 2/3 of our tax dollars on entitlement programs and interest on the debt. You will note the spike in the dollars spent during the coronavirus pandemic. These dollars are projected to grow from approximately 2/3 to 3/4 of the government spending in just the next 10 years.
It is important to note that much of the government debt has been financed at interest rates that have been held artificially low for the last dozen years since the onset of the Great Financial Crisis in ‘07–‘08. As the Federal Reserve Bank has embarked on an aggressive campaign of raising interest rates to fight rising and persistent inflation, the cost of interest on the federal debt could potentially skyrocket in the coming years.
This gap will continue to grow in the future as our population continues to age and as the baby boomer generation retires. Unfortunately, this demographic trend is also hitting much of Europe and Japan.
We have always taken the position that we are short on government, but long on humanity, innovation, and technology. They have brought great benefit to our society and our economy over time. These are trends we are going to have to pay close attention to over the coming years. There are no easy answers, and as Fed Chairman Jerome Powell recently said in his August speech from Jackson Hole, Wyoming, there will likely be shared pain for people across the country as we address these difficult issues.
It is important for us to be aware of and understand trends and demographics as we move through the next decade. They are like a steamship or aircraft carrier…they move very slowly over time. While this may not be a government mandate, it is mandatory spending that the government is committed to. We will do our best to keep you informed of these important economic and politically charged issues. It is important to know the reality and the context as we continue “Moving Life Forward”.
© 2022 Jesse Hurst
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