One of the longest running pointless discussions in US politics is about what to do about the federal budget deficit. This is simply the annual excess of all government spending over all government revenues. The cumulative total of all such deficits is the government debt. For the fiscal year 2024, the government had revenues of $4.92 trillion and spent $6.75. trillion, leaving a deficit of $1.83 trillion. The national debt up through November 2024 was $36.09 trillion.(See here for more.)

Different people have different views about how big of a problem the deficit is. One school of thought uses the metaphor of the government budget being like a family’s budget, and that a deficit means borrowing money that has to be paid back with interest later. They argue that running up deficits year after year means that the debt burden will become intolerable and that we are leaving future generations (our children in this metaphor) in a fiscal hole that they will have a hard time digging themselves out of. They view this as a horrible prospect.

Another group argues that government budgets are not like household budgets because the government has ways to fund the deficit by selling treasury bonds that are not available ot ordinary people. This is in effect borrowing money but because the US government is considered such a good credit risk and has never defaulted on its interest payments, it has no problem raising any amount of money, unlike households which need to provide collateral and can only borrow so much. This group argues that deficits are sometimes necessary as an investment in the future to grow the economy. They may concede that deficits are not necessarily good things in themselves but that the real measure of concern should not be the size of the debt but how much it is as a percentage of the GDP. Currently that figure is 123%. There has been a rule-of-thumb that the percentage of debt to GDP should be less than 100% to avoid some kind of fiscal crisis. The US has exceeded that but like so many economic rules of thumb, it is not clear how seriously that benchmark should be taken.

There is yet another school of thought known as Modern Monetary Theory (MMT) that argues that as long as governments can borrow or print money to cover its deficits, those deficits do not matter that much.

Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries—such as the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency that they fully control—are not operationally constrained by revenues when it comes to federal government spending.

Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.
…

The central idea of modern monetary theory (MMT) is that governments with a fiat currency system under their control can and should print—or create with a few keystrokes in today’s digital age—as much money as they need to spend because they cannot go broke or be insolvent unless a political decision to do so is taken.

Some say such spending would be fiscally irresponsible, as the debt would balloon and inflation would skyrocket. But according to MMT:

1. Large government debt isn’t the precursor to collapse that we have been led to believe it is;
2. Countries like the U.S. can sustain much greater deficits without cause for concern; and
3. A small deficit or surplus can be extremely harmful and cause a recession since deficit spending is what builds people’s savings.

MMT theorists explain that debt is simply money that the government put into the economy and didn’t tax back. They also argue that comparing a government’s budgets to that of an average household is a mistake.

While supporters of modern monetary theory acknowledge that inflation is theoretically a possible outcome from such spending, they say it is highly unlikely and can be fought with policy decisions in the future if required. They often cite the example of Japan, which has much higher public debt than the U.S.

Needless to say, so-called ‘deficit hawks’ who think that all budget deficits are bad dismiss MMT as a fantasy that encourages profligacy. But these hawks tend to be opportunistic in their attitude towards deficits. When it comes to providing tax cuts to the wealthy, they take a cavalier attitude, arguing that the incredible growth that will be stimulated by the cuts will generate more than enough new revenues to cover any deficits. That this so-called ‘supply side’ fantasy has not been shown to occur in the past never stops them from bringing it up again and again when urging tax cuts and we can expect this with the new Republican government.

However, they also use deficits as a political weapon to cut programs that do not benefit the wealthy. In such cases, they argue that spending on social services must be compensated by cutting other expenditure elsewhere. Of course it could also be compensated by raising revenues elsewhere through taxes and tariffs but that is something that is never brought up when it comes to covering the cost of tax cuts.

To see how disingenuous their arguments are, let’s look at where the government spending is. Of the total of $6.75 trillion in 2024, $0.710 trillion went on interest payments to service the debt, $2.186 trillion went to Social Security and Medicare, $0.616 trillion went for Medicaid, $1.011 trillion went for Defense and Veterans Affairs, for a total of $4.523 trillion of the overall $6.75 trillion budget. That leaves just $2.23 trillion for all the other government activities. Hence to close the deficit of $1.83 trillion, one would need to cut 82% of the entire remaining government functions, throwing huge numbers of government employees out of work and eliminating many government services that people have come to view as essential and feel entitled to.

That this is impossible is obvious but is something Republicans never highlight with their breezy talk of ‘cutting the fat’ in the federal budget as a solution to the deficit. Interest on the debt cannot be cut without destroying the credit worthiness of the US government and making it next to impossible to sell Treasury bonds in the future. While there is undoubtedly waste in the defense budget, that is a sacred cow. Veterans Affairs is another sacred cow that Republicans won’t touch. Cutting Social Security and Medicaid, much as they would like to, would be political suicide because those are hugely popular programs that benefit all older Americans. Those benefits are guaranteed by law and increase with inflation and so there has been talk of passing legislation to converting them to block grants that would be lump sums given to the states but that would not grow with inflation and could even be cut. That would cause an uproar because middle class and wealthy Americans know how to raise a stink when it is their ox that is being gored.

The only program that they are willing to cut is Medicaid since it benefits only poor people. But even if that were completely eliminated, that still leaves a deficit of $1.21 trillion. Closing that would require cutting 54% of the rest of the federal government, another impossibility.

The only way to reduce the deficit without massive cuts in government discretionary spending is to raise taxes or cut defense spending. That is the dirty little not-so-secret that is carefully avoided being spoken of.

Congress almost never has an honest discussion about the deficit, preferring instead to sloganeer and posture, and there is no prospect of that changing anytime soon.