3 Ways Federal Deficits Can Impact Your Cost of Living
The golden rule of personal finance is to live within your means. That is, to spend less than you earn and hopefully have a little left over — a surplus — to save or invest.
The United States does not operate according to this rule.
According to the Treasury Department’s FiscalData site, the federal government has spent $6.81 trillion in fiscal year 2026, yet collected just $4.84 trillion in revenue. The $1.97 trillion gap is the federal deficit — the opposite of a surplus — and the march toward $2 trillion has been a long time coming.
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The country has run a surplus only four times in the last 50 years — 1998 through 2001 — and has operated at a deficit every year for the last 25 years. Just like individuals, governments must borrow to spend more than they earn, and a quarter-century of deficit spending has inflated the national debt to $40 trillion, according to U.S. Treasury Fiscal Data.
Congressional spending bills might feel abstract, and numbers like $40 trillion can seem incomprehensible. However, government overspending can spur inflation and force your household to spend more on everyday purchases in three primary ways, according to the U.S. Government Accountability Office (GAO): it increases borrowing costs, stagnates wages and makes goods and services more expensive.
Deficits Make Borrowing More Expensive
The government borrows money through bond sales, and too many Treasury securities flooding the market crowd out private capital. As inflation erodes purchasing power, investors demand higher yields, which increases the interest the government must pay on its debt. Additionally, the Fed raises interest rates to cool the economy when inflation remains elevated.
The consequences leap from the bond market to your checkbook. According to the The Budget Lab at Yale, a permanent primary deficit increase of just 1% of GDP adds:
$60 in annual interest to the typical car loan
$600 in annual mortgage interest to the median home loan
$1,000 in annual interest to the typical small business loan
Government Overspending Can Make Goods and Services More Expensive
During the COVID-19 pandemic, the government spent nearly $1 trillion on stimulus payments designed to keep the economy from collapsing, according to the GAO. At the same time, it decreased revenue by hundreds of billions of dollars through special tax credits.
As cash-flush households spent their stimulus checks, demand outpaced supply in a super-heated economy, and inflation peaked above 9% in 2022, the highest rate in 40 years, according to the U.S. Bureau of Labor Statistics (BLS).
Two years later, in 2024, the MIT Sloan School of Management concluded that what many economists had predicted had indeed come true. Government spending accounted for a massive plurality of the 2022 inflation crisis, 42%, with none of the other contributing factors — including yield curves, interest rates, personal consumption and money supply — claiming more than a percentage in the high teens.
Deficient Spending Is Linked to Wage Stagnation
As noted, government overspending can dramatically increase the cost of borrowing for businesses. Those extra costs can make it harder for entrepreneurs to raise wages as prices rise, but other factors are also at play.
Meanwhile, the Heritage Foundation argues that excessive federal spending on subsidies and unemployment insurance can disincentivize parts of the workforce, and businesses that can't hire capable employees can’t expand, grow or pay their workers more.
Just as with people, reckless government spending causes unintended ripple effects. So, if you can’t convince your boss to give you a raise, but you can’t find a comparable job that pays more, you might have federal deficit spending to thank for your diminished purchasing power.
Editor’s note on political coverage: MoneyLion is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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