Government efficiency is good — fiscal responsibility is better

The U.S. debt ceiling is in the news again.

With the national debt at its $36.1 trillion limit, lawmakers must scramble to raise the ceiling or risk a default. Such debt ceiling gymnastics have become so common that the “game of chicken” played by both parties typically leads to 11th hour compromises and concessions. Yet the need to raise the debt ceiling is symptomatic of a bigger issue: the federal government is broke.

Many will wonder, how can a wealthy country like the U.S. be broke? Well, as a country, we are not. We have an abundance of assets that provides a standard of living envied by people around the world. Even those considered poor in the U.S. would be considered comfortable in most other countries, based on the goods and services they have access to.

For example, 98 percent of people in the U.S. own a mobile phone. Yet more than 11 percent live below the poverty line. This means that a large majority of those living below the poverty line own a mobile phone.

The federal government is broke because it spends more than the revenue it collects. This has been the case for over two decades, dating back to 2001, the last year the federal government had a budget surplus. Such a history of budget imbalances is unsustainable, leading to the situation faced by lawmakers every time they must raise the debt ceiling.

The national debt now exceeds the nation’s gross domestic product by over 20 percent. If a company managed its finances the way that the federal government does, it would need to file for bankruptcy, sell off its assets and/or cease to operate — none of these are options for the U.S. For example, the federal government has over eight times more liabilities than assets ($45.5 trillion versus $5.6 trillion, as of Sept. 30, 2024).

What makes the federal government unique is that it can create money. It covers annual deficits by selling its debt to individuals, corporations and countries around the world.

Foreign countries own over 22 percent of our national debt (around $8 trillion total, as of April 2024). Japan owns over $1.1 trillion of the debt, while China owns around $750 billion. It is worth noting that China has been reducing its exposure to U.S. debt over the past decade, with its peak holding at over $1.66 trillion in 2013.

So what are lawmakers and the executive branch doing about this situation?

The so-called Department of Government Efficiency was created to root out government inefficiencies, fraud and waste within the federal government. An excellent idea, with a failed implementation to date, will likely cost taxpayers more than it will save. As with any complex system, the “devil is always in the details,” and with DOGE, the details are woefully inadequate.

The financial problem faced by the federal government is that it has numerous worthy investments that serve the interests of the population but not enough revenue to cover them all. This means that priorities must be set.

Before USAID was shuttered, its $40 billion budget was viewed to provide a positive return to the nation, effectively making it safer for all Americans. The White House has now identified numerous USAID uses of funds that it deems waste and fraud, some of which do indeed appear wasteful. However, others appear more ideological differences than actual misuse of funds. But throwing out the baby with the bath water is a formula for disaster. Cutting the organization and its mission will ultimately lead to a larger deficit in the future, assuming problems and conflicts that USAID investments would have prevented or deterred require resources to address down the road.

The same applies to pediatric vaccines. If Robert F. Kennedy Jr, the new secretary of Health and Human Services, gets his way and pediatric vaccine uptake wanes, the healthcare costs to treat sick children will far exceed the cost of the vaccines and the benefits (health and financial) they offer. The recent measles outbreak in Texas is a real-time case study of what happens when vaccine acceptance is dampened. RFK Jr’s about-face during the Texas outbreak is a poor response to a situation that could have been averted with stronger leadership and more direct guidance.

A deep dive into where the federal government spends the most money reveals that Social Security must be examined. Since the program now functions as “pay as you go,” in terms of funding, it is critical that the Social Security payroll taxes collected exceed the Social Security checks payments issued.

One place to look is to eliminate the cap on earnings, now set at $176,000. Just 6 percent of people who contribute to Social Security reach this threshold each year. The formula is based on a person’s average indexed monthly earnings over their top 35 earning years.

Analogous to how federal income taxes are progressive, Social Security uses two “bend points“ that provide lower paybacks for higher average indexed monthly earning levels. The final value is called the Primary Insurance Amount. To add high income earners’ contributions to the Social Security system, one can create a third “bend point” for them, paying out just one-half of 1 percent of the Primary Insurance Amount above this new bend point. This means that such high-income earners will certainly contribute more than they will ever collect during their lifetime.

Whether changes to Social Security involve modifications to the payment formula, collecting more payroll taxes from all earners, increasing the retirement age, or some combination of these, a bipartisan effort to keep Social Security solvent must be a priority.

Another big and growing item is interest paid on the national debt. This is projected to be close to $1 trillion in 2025. With the possibility of both higher inflation and higher interest rates in the future, coupled with ongoing annual deficits, this number will only get bigger over time.

Poor fiscal decisions in the past have created the mess faced today by the federal government. There is no easy solution. What is needed more than a Department of Government Efficiency is a Department of Fiscal Responsibility, which sets a standard that lawmakers must adhere to in order to get spending in line with revenue. The Office of Management and Budget appears to serve such a role yet, has no power or authority to effect or enforce change.

Lawmakers on both sides of the aisle must come together to support and enact laws and policies that will get our government fiscal condition in order. Changes to Social Security should be the first of many actions. If executed with a unified front, the risk of being voted out of office by people who continue to demand more from the government than it can offer is diminished.

Without such actions, the federal government will continue to limp along, fiscally. Even if we do not label the government as broke, that does not change its status and the trajectory that it is following. Fiscal responsibility, not government efficiency, is needed.

Sheldon H. Jacobson, Ph.D., is a computer science professor in the Grainger College of Engineering and the Carle Illinois College of Medicine at the University of Illinois Urbana-Champaign. He applies his expertise in data-driven risk-based decision-making to evaluate and inform public policy and public health.

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