New figures from the Treasury Department show that the U.S. budget deficit rose 27% during the month of July alone, putting us on course for a return to the era of trillion-dollar budget deficits:
The US budget deficit widened to $867 billion for the first 10 months of the fiscal year, an increase of 27% over this time last year, the Treasury Department reported Monday.
The current shortfall exceeds the full-year deficit for fiscal 2018, which was $779 billion.
President Donald Trump, who promised during the 2016 campaign to eliminate the federal debt, has instead overseen a dramatic increase in deficits.
The White House’s Office of Management and Budget has predicted that the deficit will exceed $1 trillion for the entire fiscal year, which ends on September 30. The nonpartisan Congressional Budget Office in May had predicted a slightly smaller shortfall of $896 billion for the year, with deficits rising above $1 trillion starting in 2022.
The last time the gap was that big was in 2012, in the aftermath of the financial crisis.
There are a number of factors driving the US deficit increase, including the $1.5 trillion tax cuts signed into law by Trump in 2017 along with a massive spending package passed by Congress.Tax revenue rose 3% to $2.86 trillion since the start of the fiscal year on October 1, but hasn’t kept up with increased federal spending, which increased 8%.
Earlier this month, Trump signed into law a bipartisan two-year budget deal that will raise spending by an additional $320 billion over the next two years and suspended the debt ceiling through mid-2021.
The graphic at the top of this post demonstrates the course that the budget deficit has taken under President’s Obama and Trump, as does this chart from Yahoo Finance, which shows the annual deficit dating back to 2001:
The worst years for the budget deficit came during the first term of the Obama Administration, but rather than being linked to massive increases in spending, they were due largely to revenue shortfalls resulting from the Great Recession and the impact it had on the economy. Although it should be noted that at least part of the increase can be attributed to the economic stimulus package adopted in the first year of former President Obama’s first term. As the chart shows, the deficit slowly began to decrease after 2010, thanks both to the recovery from the economic downturn that began in 2009 and the budgetary controls that were put in place after Republicans took control of the House of Representatives in the 2010 election. Those controls were so successful that, by 2015 the budget deficit was near where it had been during the middle of George W. Bush’s time in office. Now, we’re headed back to the era of trillion-dollar deficits.
This time, the record-setting deficits that we are likely to see for the foreseeable future are coming at a time when the economy continues to boom during what has become one of the longest economic recoveries in history, and that they come at a time when financial markets are becoming increasingly sensitive to higher levels of debt and interest rates. When the final budget deal was put forward in mid-February of last year, it included massive spending increases in almost every budget category and busted through the controls that had been put in place by the Budget Control Act of 2011, a controversial bill passed during one of the many fiscal showdowns between former President Obama and Congress that occurred after Republicans captured the House in 2010. As The New York Times noted at the time, this effectively means that Republicans have learned to love the deficits and debt they once claimed to abhor. This is the same Republican Party, which had spent the Obama years railing about spending and deficits. In the Trump Era. that same party has become the party of deficits and debt. By April of last year, the Congressional Budget Office had officially forecast that we’d be seeing trillion dollars deficits by the end of Fiscal Year 2019 and just a few months later, the national debt crossed a new benchmark and was north of $21 trillion
The word hypocrisy comes to mind here This, after all, the same Republican Party that has preached the gospel of fiscal responsibility for years, the truth is that it’s entirely consistent with how the GOP has acted so many times in the past that it’s easy to lose count. For the most part, the supposed Republican fidelity to fiscal responsibility and their concern about rising Federal Budget Deficits and the National Debt is something that has proven to be little more than a political slogan that was largely based on who controlled the White House. When former Presidents Bill Clinton and Barack Obama were in power, for example, Republicans argued that out of control spending and deficits were destined to drive up interest rates, cause the national debt to explode, and increase interest rates. They used these issues as political cudgels against the Democratic White House during both Administrations and, of course, as a way to appeal to voters and supporters. Riding this wave, the GOP was able to take control of both Congress and, eventually, the White House, but then things suddenly changed.
During the Administration of George W. Bush, for example, Republicans managed to preside over massive increases in spending that were quite plainly fiscally irresponsible. On the domestic side of the equation, they introduced a massive new trillion-dollar entitlement in the form of Medicare Part D without finding a way to pay for it. Similarly, they introduced education policy legislation such as the No Child Left Behind program that led to increases in Federal spending, again without any provisions about how it was going to be paid for in the future. Under President Bush’s leadership, they authorized and fought two wars, only of which was actually justified and necessary, that imposed serious financial burdens on the Federal Government both while the war was being fought and well into the future. On top of all that, they cut taxes. While that is not a bad thing in and of itself, and I’m certainly not going to argue against the lower tax burden that I and most other Americans had during the Bush years, from the perspective of fiscal responsibility it’s an utterly insane strategy.
This was especially true with respect to the Iraq and Afghanistan Wars. In the past, we had traditionally found ways to finance wars via what usually ended up being a combination of higher taxes and short-term debt in the form of war bonds and other means of financing. No such effort was made to do this during the Bush years even though it’s likely that the White House could have made a convincing political argument that we needed to find a way to pay for the war that was necessitated by the September 11th attacks. Instead, President Bush chose to basically let the political capital he had gained in the wake of the attacks go to waste and the Republican Party in Congress took the position of Alfred E. Neuman and adopted a “What, me worry?” when it came to fiscal responsibility. When Republicans regaining control of the White House in 2016, all those proclivities returned.
