You've no doubt heard of the Tax Foundation's "Tax Freedom Day," the day when Americans have finally earned enough money to pay all our taxes. This year, it was April 13. But because of borrowing, taxes don't pay the full costs of government. This year, it's not even close.
Today, we've finally reached what the American Institute for Economic Research calls Friedman Day, the day that we've worked enough to pay for all government spending. Friedman Day has been coming later and later in the past eight years, and this year it came seven weeks after Tax Freedom Day and nearly halfway through the year:
The reason? The federal government deficit for the fiscal year ending Sept. 30 has mushroomed to $1.84 trillion. This means that about 46 cents of every dollar of federal spending will be financed by borrowing through the sale of new U.S. Treasury securities.
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Nor is the current 2009 deficit simply a one-year spike. The most recent estimate for the 2010 deficit is $1.3 trillion, still about 8.5% of GDP.
And the debt will go up accordingly, by another $1.3 trillion.
The United States seems to have entered a new era of historically high deficits and a national debt that is therefore growing by leaps and bounds. Emergency or not, temporary or not, this is new territory for the federal government and for the economy.
You and I aren't paying the difference between Tax Freedom Day and Friedman Day out of our pockets, but we're on the hook for it — or our kids and grandkids are. And no, we don't "owe it to ourselves." We owe more than two-thirds of it to foreign investors and governments. And they've been getting antsy about our government's profligacy.
When the subprime mortgage crisis heated up last July, foreign governments began to worry about the value of the U.S. securities they were holding. When Fannie Mae and Freddie Mac started to look insolvent, Treasury officials had to make phone calls around the world, reassuring foreign holders of Treasury and especially "agency" (Freddie and Fannie) securities. Then the government nationalized Freddie and Fannie, taking explicit responsibility for their liabilities.
This was America's "Argentina moment." Suddenly, the United States could be viewed as a debtor nation, obliged to persuade the owners of its debt that everything would be OK.
Friedman Day, as it inches ever closer to Milton Friedman's July 31 birthday, should serve as a warning that government is consuming way beyond its means. In the years ahead — and for future generations — everything may not be OK.
So take a moment to celebrate Friedman Day today. But then spend some time in sober reflection about our future.
