Uncle Sam is broke and the nation is on the verge of a serious debt crisis, if we are not already there. The United States Government Accountability Office (GAO) recently released a alarming report concerning the financial health of the country and their conclusions are not good. The report, which should be taken very seriously, states categorically, “The federal government faces an unsustainable fiscal future.” Consider the magnitude of Congress’ own watchdog warning the nation that we cannot continue on the same spending path we are on.
The root cause of this warning is our national debt, which has grown due to the out-of-control spending that has occurred under both Republican and Democratic administrations. The GAO report charts the precarious path on which the federal government finds itself:
At the end of fiscal year 2021, debt held by the public was approximately 100% of gross domestic product (GDP), an increase of 33% from fiscal year 2019…Debt held by the public is expected to reach its historical peak of 106% of GDP within 10 years and continue to grow at an increasing rate. This ratio could reach 217% of GDP by 2050, in the absence of any change in fiscal policy.
The GAO is not alone among government offices and agencies sounding the alarm. As noted in the report, projections from the Office of Management and Budget, the Treasury Department, and the Congressional Budget Office all show that current fiscal policy is unsustainable over the long term.
The national debt currently stands at $30 trillion and continues to rise as the federal government continues to run massive deficits; Federal spending doesn’t seem to be slowing anytime soon. If President Joe Biden’s budget priorities are passed by Congress, the national debt is estimated to will grow to $44.8 trillion by 2032. “Government spending has grown 266% over the past 20 years, compared to GDP growth of just 112% over the same period,” wrote Preston Brashers, senior policy analyst at the Heritage Foundation.
Perhaps none of this is a surprise. After all, Washington, DC is rarely held up as a model of budget restraint. But even a state that is run as tightly as Iowa needs to be concerned. Iowa, like other states, depends on the federal government for support. Our state’s general fund, which is most dependent on income and sales taxes, is just over $8 billion. However, it is estimated that the federal government will send more than $9 billion to Hawkeye State this year to supplement funding for Medicaid, education and a host of other programs, as shown in the table below. -below.
Incidentally, this $9 billion in federal support does not include the billions Iowa has received through the numerous COVID-19-related economic stimulus measures passed by Congress. Our state has received a similar amount ($9.2 billion) from the CARES Act and the US Rescue Plan Act (ARPA), among other stimulus measures. The most recent stimulus law, the Infrastructure Investment and Jobs Act, to bring Iowa with about $1 billion per year from fiscal year 2022 through fiscal year 2026.
Policy makers in Iowa must prepare for a severe economic crisis that could be triggered due to massive federal government debt. Remember, a handful of government offices have already declared Washington’s fiscal policy unsustainable. What would happen if those federal dollars circulating in Iowa were reduced?
On the current track, it seems inevitable that our federal government will not meet its obligations to the states. So what then? If Congress cuts the dollars they send to us, will they still maintain the current terms that are attached to those dollars? Or would they be willing to cut those strings and allow state decision makers to innovate? Iowa lawmakers must find ways to push back against Washington, DC, while looking for ways to innovate. Are there potential savings that the federal government is not currently allowing them to capture? Leaders at the state level must set priorities to determine which programs are essential and which programs are just an extension of federal largesse.
In recent years, Iowa has done the opposite of the federal government. Governor Kim Reynolds and the Legislature follow a policy of fiscal conservatism and establish a stable financial base. Nevertheless, Iowa must be prepared for the approach of the debt crisis, because a time is approaching when real austerity could force Uncle Sam to cut spending, which will have a direct impact on the budget structure of the states. .