The US federal budget deficit is set to effectively double in the 2023 fiscal year due to declining tax receipts, rising interest rates and continued demand for expiring pandemic relief benefits, putting pressure on the country’s finances.
The latest data from the Treasury Department shows the budget deficit in 2023 at $1.7 trillion, up from $1.37 trillion in 2022. make the loss look smaller That was actually up from last year, because of an accounting mirage related to the student-loan forgiveness program that President Biden proposed last year.
That program was struck down by the Supreme Court this summer and never went into effect. But the Treasury recorded this as a 2022 cost, artificially increasing that year’s deficit. After the court struck down the program, the Treasury recorded it as a savings, artificially reducing this year’s deficit.
When those student loan impacts are taken into account, the deficit increases from about $1 trillion in 2022 to $2 trillion in 2023, administration officials confirmed in a call with reporters on Friday.
Officials downplayed the increase in a news release announcing the deficit totals, instead focusing on the strength of the economy and Mr. Biden’s proposals to reduce future deficits, primarily on high-income earners and corporations. But by increasing taxes.
“The Biden Administration is focused on leading our economy toward healthy and sustainable growth,” Treasury Secretary Janet L. Yellen said in the release. “As we do so, the President and I are also committed to addressing the challenges of our long-term fiscal outlook.”
The growing gap between what the government spends and what it earns comes at an inconvenient moment, as the president looks to a divided Congress for aid to Israel and Ukraine amid concerns about government spending and whether the United States America can finance two wars.
Republicans – who helped finance large budget deficits with tax cuts and spending increases while in power – have begun pushing for deep budget cuts to reduce the federal deficit. The fact that the deficit is growing could make it even more challenging to get Congress to agree on a series of spending bills that would have to be passed next month to prevent a government shutdown.
On Friday, Mr. Biden’s administration formally asked Congress to approve more than $100 billion in emergency spending, including military aid to Ukraine and Israel, humanitarian aid in those countries and Gaza and improvements to U.S. border security. Many new efforts are involved.
Ms. Yellen said this week that the United States is able to afford those costs.
“The United States can certainly stand with Israel and support Israel’s military needs, and we can and should also support Ukraine in its struggle against Russia,” Ms Yellen told Sky News. “
Despite growing concern in Washington and Wall Street about the dire fiscal trajectory, lawmakers have been unable to coalesce around plans to enact meaningful spending cuts or tax increases. The chaos in the House of Representatives, which has been unable to elect a speaker since Republicans ousted Representative Kevin McCarthy this month, is preventing Congress from passing any legislation or short-term spending packages.
Economists and deficit advocates have warned that the current borrowing path is unsustainable, especially if rates remain high for long.
The national debt topped $33 trillion this year, and fiscal watchdogs have warned that within the next three decades, the cost of interest on the debt will be the nation’s largest expense. The Congressional Budget Office estimates that by 2053, the public will have a federal debt 177 percent of GDP.
Kent Conrad, a senior fellow at the Bipartisan Policy Center, told lawmakers at a congressional hearing Thursday about the need for a new fiscal commission, “I believe we have reached a defining moment — our fiscal affairs are completely Have derailed from.” “The growing deficit and debt are an economic and national security concern.”
The deficit has increased this year due to several factors, including delays in collecting tax revenues as a result of extreme weather and the unexpectedly high costs of some federal programs. For example, the Internal Revenue Service is paying out billions of dollars in tax refunds related to the Employee Retention Credit, a pandemic-era benefit that was recently halted due to concerns about fraud.
The Biden administration is hoping to rely on a strong IRS, which received $80 billion in new funding as part of last year’s climate legislation, to boost tax collections. Although the agency has had some early success in cracking down on tax evasion, it already faces the prospect of losing nearly a quarter of its funding. A Congressional Budget Office report this week estimates $25 billion will be cut from the IRS budget Add more than $24 billion to the deficit.
Biden administration officials have blamed former President Donald J. Trump, who signed a sweeping tax-cut package in 2017, is to blame. Analysts believe those cuts have reduced federal revenues and increased the deficit since they were implemented. Some officials also admit that the deficit last year increased much more than the administration had estimated. Analysis by the Congressional Budget Office shows that the unexpected increase was the result of rising borrowing costs and declining tax revenues.
The decline was driven by declining capital gains tax receipts, increased claims — possibly fraudulent — for a pandemic-era tax exemption and an I.R.S. Is due to. The decision to delay tax filing deadlines for people in California and other states affected by natural disasters.
“The increase in the deficit last year was largely driven by a sharp decline in tax revenues, while spending on programs other than Social Security, Medicare and Medicaid actually declined slightly as a share of the economy,” said Lael Brainard, Who is the head of SRI, said. Biden’s National Economic Council. “As budget analysts warn, the Trump tax cuts for the rich and big corporations are increasing the deficit and our national debt.”
Mr Biden proposed more than $2 trillion in tax increases and other measures in his budget this year to reduce future deficits. He has signed two tax increases into law: the minimum tax on large corporations and a tax on stock repurchases. He has also increased funding for the IRS to crack down on tax fraud and bring in more revenue. Those measures would reduce the deficit by as much as they should, but they are not large enough to offset the projected overall increase in the deficit in the coming years.
Some administration officials believe that in the future if interest costs do not decline, the President may need to propose even greater deficit cuts – almost certainly higher taxes on high earners and corporations. As an increase.
Top Democrats in Congress say the sharp rise in borrowing costs will encourage them to fight Republican efforts to make permanent provisions of Mr. Trump’s tax cuts that are set to expire in 2025 — or at least those provisions that Benefits high earners and corporations – and an emphasis on implementing Mr Biden’s tax plans, which include a new tax directed at the wealth of billionaires.
The top Democrat on the Budget Committee is Representative Brandon F. “Today we are in a very different interest rate environment than we were a year ago – about 180 degrees different,” Boyle said in an interview.
“As we continue to drive down inflation – and all trends are pointing in the right direction – I’m confident you’ll see a decline in interest rates, which will give us some relief on the deficit front,” he said. Added. “But there’s no question as we look to 2025, and the Trump tax cuts expire, we need more revenue.”
Republicans are increasingly focused on curbing spending on social safety net programs like Social Security and Medicare, which are the largest and most expensive federal programs.
Representative Jody C. Arrington of Texas, Republican chair of the House Budget Committee, said, “It’s mandatory spending and entitlement programs that are actually driving up the debt, and if we don’t address them we’re actually going to bankrupt this country. Will give.” , said this week.
Despite the relative strength of the US economy internationally, its long-term fiscal problems are of concern to global economic policymakers.
“Fiscal policy is very loose at the moment,” Gita Gopinath, the International Monetary Fund’s first deputy managing director, said in an interview last week. “We think it is time for fiscal consolidation and rebuilding buffers.”
ben castleman Contributed to the reporting.