A new analysis reveals that the Federal Government will likely incur an addition $1 trillion in debt this year alone:
It was another crazy news week, so it’s understandable if you missed a small but important announcement from the Treasury Department: The federal government is on track to borrow nearly $1 trillion this fiscal year — President Donald Trump’s first full year in charge of the budget.
That’s almost double what the government borrowed in fiscal year 2017.
Here are the exact figures: The U.S. Treasury expects to borrow $955 billion this fiscal year, according to a documents released Wednesday. It’s the highest amount of borrowing in six years, and a big jump from the $519 billion the federal government borrowed last year.
Treasury mainly attributed the increase to the “fiscal outlook.” The Congressional Budget Office was more blunt. In a report this week, the CBO said tax receipts are going to be lower because of the new tax law.
The uptick in borrowing is yet another complication in the heated debates in Congressover whether to spend more money on infrastructure, the military, disaster relief and other domestic programs. The deficit is already up significantly, even before Congress allots more money to any of these areas.
“We’re addicted to debt,” says Marc Goldwein, senior policy director at Committee for a Responsible Federal Budget. He blames both parties for the situation.
What’s particularly jarring is this is the first time borrowing has jumped this much (as a share of GDP) in a non-recession time since Ronald Reagan was president, says Ernie Tedeschi, a former senior adviser to the U.S. Treasury who is now head of fiscal analysis at Evercore ISI. Under Reagan, borrowing spiked because of a buildup in the military, something Trump is advocating again.
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Trump’s Treasury forecasts borrowing over $1 trillion in 2019 and over $1.1 trillion in 2020. Before taking office, Trump described himself as the “king of debt,” although he campaigned on reducing the national debt.
The Committee for a Responsible Federal Budget predicts the U.S. deficit will hit $1 trillion by 2019 and stay there for a while. The latest borrowing figure – $955 billion – released this week was determined from a survey of bond market participants, who tend to be even faster to react to the changing policy landscape and change their forecasts.
Both parties claim they want to be “fiscally responsible,” but Goldwein says they both pass legislation that adds to the debt. Politicians argue this is the last time they’ll pass a bill that makes the deficit worse, but so far, they just keep going.
This news comes on top of the fact that the tax reform bill that was passed in December is expected to add at least $1.5 trillion to the National Debt over the course of ten years, a number that could leap higher if the economy doesn’t perform as strongly as expected or if we end up going into recession at any point in that period. Additionally, as I noted back in April, earlier forecasts had stated that, thanks to the tax cut and the fact that it’s unlikely that we’ll see significant spending reduction from this Congress or White House any time in the near future, we are headed for an extended period of time during which the annual budget deficit is expected to exceed $1 trillion per year for the next several years. This, of course, will accelerate the growth of the National Debt considerably over the course of the next several years at least. This is likely to lead to higher interest rates and slower economic growth all on its own, thus creating a vicious cycle in which the debt drags down the economy while the economy causes government revenue to decrease while spending continues to increase.
Supporters of President Trump and the Republicans, of course, will no doubt point out that this isn’t the first time that the Federal Government will borrow this much money while running up annual deficits of a trillion dollars, We saw the same thing during the early years of the Obama Administration, and that became a political cudgel that Republicans used to attack the President and the Democrats both when they were in the minority and when they took control of the House of Representatives. After that happened in 2010, those deficits formed much of the basis for the numerous confrontations between the White House and Democratic Senate on one side and the Republicans on Capitol Hill on the other.
However, there’s a profound difference between the trillion-dollar deficits during the Obama years and those we’re headed into now. The Obama deficits came in the wake of the Great Recession and, while they were at least partly due to increased spending such as the 2009 stimulus package, one of the main reason for the size of the deficits in those years was the fact that Federal revenues were still feeling the impact of the Great Recession for several years after the recession ended. Furthermore, those large deficits largely ended with the 2012 Fiscal Year. After that, they slowly began to fall to the point where they ended up below $500 billion in Obama’s second term. Part of the reason for that, of course, was due to the restraints on spending that were put in place due to the budget deals reached between the Republican House and the Obama Administration, but it’s also attributable to the fact that revenues began to return to normal as the economy recovered from what had been the worst economic downturn since the end of World War II.
These projected Trump Era deficits are different, though, because they’d be taking place during a period of economic growth. In fact, the Administration’s own forecasts are already assuming that the budget deficit will rise at the same time that they believe, without any real evidence, that economic growth will be far stronger in the coming years than it has been since the Great Recession ended. If those forecasts turn out to be wrong, which is certainly likely, then the deficits will be even higher than currently projected unless Congress and the White House either cut spending significantly or find a way to increase revenue. Right now, it appears that there is neither the political will nor the desire to do this. In any case, it’s unlikely that any significant moves will be made this year given the impending midterm elections. What happens after that is anyone’s guess.
