The US federal government collected $1.86 trillion this fiscal year to date, otherwise known as February (the fiscal year is October 1, 2023, to September 30, 2024). That is an increase of $121 billion over the same period last fiscal year. That sounds encouraging until you find out that federal spending in the same time period increased by $227 billion.
Tax season is upon us, so it seems a suitable time to look at the sources of federal revenue. The simple answer is taxes. The following three sources account for 95.1% of all federal revenue. The dollar amounts illustrate revenues for the fiscal year to date.
| Source | Revenue in billions | % of Total Revenue Received |
| Individual income tax | $928 | 50.02% |
| Social Security and Medicare taxes | $664 | 35.72% |
| Corporate taxes | $175 | 9.40% |
Our projection of a tight labor market and the attendant increase in wages through the rest of this decade bode well for increasing federal revenue over the next five tax seasons (not counting the 2024 tax season). A problem is that we are likely to see spending go up at an even faster pace. Our projection of a depression in the 2030s places federal revenue, and thus the federal government’s ability to spend, in serious jeopardy. Layoffs, wage cuts, and wage freezes will reduce federal revenue at a time when increased spending (i.e., stimulus spending) is needed.
The federal government has spent $2.68 trillion this fiscal year to date. That is $820 billion more than it collected in revenue. The following list comprises 75% of all federal spending through February 2024.
| Where spent | Spending in billions | % of total spending |
| Social Security | $593 | 22% |
| Healthcare | $369 | 14% |
| National Defense | $363 | 14% |
| Net Interest | $350 | 13% |
| Medicare | $324 | 12% |
The anticipated increase in the baby-boomer-in-retirement population will lead to increased spending in the first, second, and last line items above. Social Security spending for all of calendar 2023 was 11.8% higher than the year before. Net interest paid for all of calendar year 2023 was $947.6 billion, up 30.6% from 2022. Future inflation, with the attendant increase in interest rates, means that interest payments will grow and consume more of the federal budget in the latter years of this decade.
The outlook for the 2030s is troubling in that the needs of Social Security, healthcare, and Medicare will grow ever larger as revenue sources are strained or declining. One possible action the federal government (and other levels of government) might take to meet social needs is to raise taxes. That course of action will reduce the population’s ability to consume, thus further aggravating the economic situation.
The federal government cash account is a negative $1.561 trillion, which is 40% larger than the year-earlier figure (12/12 as of September 2023, the latest available data). The average balance in the 10 years before COVID was $-883.5 billion, or almost half of what it is today.
Apart from significant borrowing by the federal government, the budget deficit and cash deficit will only get larger (see Brian Beaulieu’s April 5 Fed Watch episode and his discussion on US Treasury Gross Issuances and the impact on the economy). An increase in government debt will exacerbate the economic problems of the government and the population in the coming decade.
The spending and revenue discussion above highlights the reality that individuals and businesses must plan for a future that is dependent on personal/company resources. The next five and a half years of wage increases, increased investment portfolios and wealth creation, and greater home equity will lull many into a state of complacency that will leave them unprepared for drastic changes in the 2030s. Plan now to create wealth this decade and then preserve your wealth in the next decade.