Treasury Secretary Bessent is celebrating higher tax revenue – even as government spending explodes. Here’s how government revenue and spending affect the purchasing power of your savings…
By Peter Reagan
One of the worst feelings in the world is when you’re in one of those darned if you do, darned if you don’t situations, where all of the available options are… less than optimal, we’ll say.
It’s in those situations that you sometimes just have to go with “the devil you know” versus the one that you don’t.
What I mean is that you have to take the option that you want to avoid less.
Let me explain…
Treasury Secretary Bessent celebrated a “win” on taxes
Now, you would like to think that a win to celebrate would be one that benefits you and me, right?
I don’t know anyone, though, that thinks that paying more taxes is a win…
… and that’s what he’s celebrating. Hans Nichols with Axios writes,
Treasury Secretary Scott Bessent will tell House lawmakers this morning that the cost-cutting and layoffs at the Internal Revenue Service didn’t lead to an expected decline in revenue, with April’s and May’s tax receipts coming in higher than last year.
That’s surprising, considering the dozens of projections we’ve seen that slashing IRS positions would lower tax collection significantly ($35-$90 billion a year).
This is good news for Secretary Bessent!
More tax revenue gives the Treasury Department more time before it runs out of money and hits the debt limit.
The “x date,” or day the Treasury will no longer be able to pay the bills without an increase to the debt limit, is August.
On the one hand, this is simply a win. A vindication for DOGE and clear evidence that we can cut down on bureaucracy (and the costs of that bureaucracy) without compromising their mission. Sure, I feel bad for former IRS employees who are looking for jobs in the private sector. I wish them the best.
On the other hand, it’s tough to get excited about increased tax revenue. Because who pays those taxes?
Businesses and families. In other words, you and me. Every dollar of tax revenue collected comes out of business profits or our wallets.
So I find it a little problematic to cheer about higher tax revenues. Secretary Bessent doesn’t though – because he knows he’s going to need every penny…
Revenues went up (but not as fast as expenses)
Despite DOGE cuts, the federal government didn’t reduce overall spending:
After running a short-lived surplus in April thanks to tax season receipts, the deficit totaled just more than $316 billion for the month, taking the year-to-date total to $1.36 trillion.
Those are mind boggling amounts of money, so to give it some context…
The annual tally was 14% higher than a year ago, though the May 2025 total was 9% less than the May 2024 shortfall.
14% higher.
That’s shocking.
Even more so when we consider that Trump’s “Big Beautiful Bill” with its additional deficit spending hasn’t yet been passed.
Is it possible that the federal government’s dollars just aren’t going as far as they used to? Actually, it’s more than possible – it’s certain, considering that our dollars have lost 20% of their purchasing power over the last five years.
Still, whether the federal budget has risen due to lost purchasing power or due to new priorities, the federal government will need to sell more debt to finance the budget gap.
Deficits, debt and dollar devaluation
And if you’re not familiar with economics, government deficit spending may not concern you.
But government deficits should concern you.
Why?
Because government deficits cause inflation. (Most people don’t understand this. Most politicians at least pretend not to understand this.) Here’s how:
- Government spending competes with business and household spending, driving up prices
- Deficit spending requires issuing debt (denominated in dollars) – which increases the money supply, diluting purchasing power
- Debt service payments on existing debt also require issuing more debt, increasing the money supply
The higher the government debt climbs, the more our purchasing power suffers.
Other than the all-too-often raised debt ceiling, there’s no limit on the amount of debt the U.S. government can issue. Similarly, there’s no limit to the quantity of dollars the Federal Reserve can print. And that’s incredibly frustrating! Because it means we cannot control the purchasing power of our dollars. It’s out of our hands.
Inflation is how the federal government spends without raising taxes. I think of inflation as “the invisible tax (that nobody voted for and everybody pays).” Unlike taxes, the government doesn’t set guidelines in public. Then they pretend to be shocked when the cost of living surges, when voters get angry…
Preserving our purchasing power
There’s not much we can do to curb government spending. There’s not a lot we can do to lower our taxes.
Since those aren’t problems we can solve, let’s focus instead of what we can do. We can counteract the invisible tax of inflation by diversifying our savings into inflation-resistant stores of wealth. By making sure we own assets that can’t be devalued by government spending or money-printing..
For centuries, physical precious metals have been the #1 safe haven store of value. Physical gold and silver have intrinsic value, meaning their price isn’t set by a bureaucrat or a central bank. Learn more about the benefits of physical precious metals here.