Consumers Are Losing Financial Ground In Past 25 Years, Evidence Shows

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During the past 25 years, consumers have lost a tremendous amount of buying power to inflation. The bottom line? Consumers are losing financial ground. The increase in median income for consumers from 2000 to 2025 has greatly lagged the price increase for homes and autos. The federal government hasn’t fared much better as annual expenditures have increased at a much faster pace than revenue. What does this reveal about the path of America? The current trend cannot continue without potentially serious economic consequences for Americans. If consumers continue to lose financial ground and the federal government continues to overspend, one day the government may have to choose between helping victims of the latest disaster or paying out Social Security benefits (or other program payments). If this seems too pessimistic, keep reading as we look at the data for clues to the future.

Consumers Are Losing Financial Ground: The Proof

The U.S. consumer is the lynchpin of the American economy. Nearly 70% of total economic growth (GDP) stems from consumer spending. In other words, when consumers spend, the economy does well. Business and government spending, plus net exports make up the rest of GDP.

According to the Social Security Administration, from 2000 to 2025, median income increased from $31,986 to $48,568 per year, an increase of 52%. During the same period, the National Association of Realtors reports that the median cost of a new home rose by 143% ($166,535 to $405,082) and the Bureau of Economic Analysis says average auto prices rose from $22,459 to $47,969, an increase of 114%. In short, the income of consumers has failed to keep up with the cost of these items (see chart below).

Federal Government Continues to Overspend

Turning our attention to Washington D.C., federal expenses have risen much faster than revenue. Again, from 2000 to 2025, federal revenue rose from $2.0 trillion to $5.5 trillion, an increase of 173%. Although revenue rose by 173%, federal expenses increased 311% from $1.8 trillion in 2000 to $7.4 trillion today. The result? Every budget shortfall is added to the national debt, which has soared to its current level of $37.5 trillion, an increase of 561% over the past 25 years (see chart below).

As the federal government continues to spend more than it collects, annual budget shortfalls (i.e., deficit spending) have become the norm. In 2000, the federal government had a budget surplus of about $236,241. A year later, the federal budget had a surplus of 128,236. Beginning in 2002, the federal government has had a budget shortfall every year. In the current fiscal year, the federal budget shortfall is expected to be about $1.9 trillion, which, as you may have guessed, will be added to the national debt.

Consumers Are Losing Financial Ground: The Burden

When you convert the national debt to an amount per taxpayer, we quickly see the financial burden this presents. In 2000, the national debt was $5.7 trillion and according to the IRS, there were 104,515,135 taxpayers. This equates to a debt burden of $54,241 per taxpayer. Currently, the national debt is $37.5 trillion and there are 113,223,317 taxpayers, which equates to $331,204 per taxpayer (see chart below).

While the number of taxpayers is 8.3% higher today than it was in 2000, the national debt, on a per taxpayer basis, has increased a staggering 511%. It’s important to note that the number of taxpayers as a percentage of the total population was 37% in 2000. Today it is 33%. With fewer taxpayers today it suggests that jobs may have been lost to productivity gains during this period. As we move forward with AI, this trend could accelerate.

What does this mean for Americans? As the federal government continues to overspend, the debt burden on Americans will grow increasingly larger. Moreover, a time may come when Washington will not be able to fund its operations, and borrowing may become more difficult.

In the coming years, the federal government will be forced to push for higher and more taxes to reduce its annual spending deficit. As America’s debt burden grows, greater taxation will reduce economic growth, which will hurt millions of Americans. While the federal government may be forced to choose between popular programs, Americans may be forced to choose between essential items like medicines, food, utilities, and more. Clearly, Washington has a problem with spending more than it collects while American’s must live within their means.

While consumers are losing financial ground, the federal government continues to overspend. The result? Most likely we’ll see higher taxes in the future. Remember, higher taxes are an obstacle to economic growth.