|October 25, 2019|
U.S. deficit hit $984 billion in 2019, soaring during the Trump era
|The U.S. government's budget deficit ballooned to nearly $1 trillion in 2019, a $205 billion increase from a year earlier, as America's fiscal imbalance widened for a fourth consecutive year despite a sustained run of economic growth.|
The country's worsening fiscal picture runs in sharp contrast to President Trump's 2016 promise to eliminate the federal debt within eight years. Since taking office, Trump has endorsed big spending increases and steered most Republicans to abandon the deficit obsession they held during the Obama administration.
In 2011, the GOP-controlled House of Representatives pushed to pass a constitutional amendment that would require balanced budgets. And the Obama administration created a deficit commission looking for ways to slow the growth of government debt. But those efforts have all fallen away, and now budget experts believe the country will see $1 trillion annual deficits far into the future.
The gap between spending and revenue, referred to as the deficit, grew to $984 billion in the fiscal year that ended Sept. 30, the highest dollar amount since 2012, according to the Treasury Department. The government spent $4.4 trillion on numerous programs and services and brought in $3.5 trillion through taxes and other revenue.
It is unusual for the government to run such a large budget deficit during a period of economic growth because spending on unemployment and other benefits tend to contract and tax revenue often grows. But the White House and Congress have contributed to the deficit's surge by enacting large spending increases and passing the 2017 tax cut law. The budget deficit was $665 billion in 2017.
U.S. debt is considered one of the safest investments in the world and interest rates remain low, which is why the government has been able to borrow money at cheap rates to finance the large annual deficits. But the costs are adding up. The government spent around $380 billion in interest payments on its debt last year, almost as much as the entire federal government contribution to Medicaid.
Budget experts have also warned that a lack of focus on the deficit could make it much harder for the U.S. government to respond to the next budget crisis, because policymakers will have less flexibility to enact new spending programs if they are devoting hundreds of billions of dollars to interest payments on the debt.
"This is the first time in our history that we are seeing a boom in the economy at the same time deficits are rapidly rising. It's alarming," said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, which supports reducing the deficit.
The Obama administration and Republicans in Congress enacted a series of measures to reduce the deficit starting in 2011, and those measures -- and a growing economy -- led the deficit to fall by almost 50 percent. But those gains have been lost by a recent apathy among policy makers about addressing the fiscal imbalance.
"There is very little discussion among Republicans about the deficit, and virtually no serious outreach to Democrats for any sort of bipartisan deal," said Brian Riedl, a budget expert at the Manhattan Institute, a libertarian-leaning think-tank, and former chief economist for Sen. Rob Portman (R-Ohio). "The parties are not talking on this issue."
The government recorded four straight years of budget deficits that exceeded $1 trillion around the time of the Great Recession, with the worst overrun occurring in 2009 when the deficit reached 9.8 percent of the U.S. economy, the highest level since World War II. A growing economy and steps taken by the Obama administration and Congress shrank the deficit to just 2.4 percent of the economy in 2015, but it slowly began expanding again largely because of spending increases.
Budget experts also say that the 2017 tax cut law has weakened the typical levels of higher tax revenue that come in during economic expansion. The legislation is projected to increase the annual deficit by about $200 billion, or close to $2 trillion over 10 years when factoring in interest payments, according to the non-partisan Congressional Budget Office.
Tax revenues remained roughly flat the first year the law was in effect, despite economic growth of about 3 percent. Tax revenues were modestly higher in fiscal year 2019, aided in part by a 70 percent increase in tariff revenue. White House officials said the 2017 tax cuts would create so much new revenue that it would offset any money lost from lower rates, but there are signs the economy is beginning to slow markedly now.
Overall spending is projected to rise by about 16 percent between 2017 and 2020, largely due to bipartisan deals struck by Congress including a 2018 law that lifted spending limits and disaster relief funding, according to the Committee for a Responsible Federal Budget.
Military spending has risen dramatically under Trump, from about $550 billion annually to more than $700 billion in 2019, and Democrats successfully pushed for increases to other parts of the budget in exchange for their support to boost money for defense.
Lawmakers and aides from both parties also say there are no serious negotiations right now over plans that would bring down America's federal deficit.
The leading Democratic presidential candidates are running on plans for enormous new spending programs that would likely add to the deficit. Meanwhile, Republicans have demonstrated little appetite for raising tax revenues after dramatically slashing them.
Trump has also promised to unveil a new round of tax cuts as part of his 2020 presidential re-election campaign, although the details and prospects for doing so remain unclear.
America's fiscal outlook could deteriorate even further should interest rates rise. The Federal Reserve has kept interest rates relatively low during this recovery, reducing the cost of borrowing and easing concerns that the deficit could trigger runaway inflation. But Trump has repeatedly urged the Fed to reduce rates to close to zero.
"The Federal Reserve is derelict in its duties if it doesn't lower the Rate and even, ideally, stimulate. Take a look around the World at our competitors. Germany and others are actually GETTING PAID to borrow money. Fed was way too fast to raise, and way too slow to cut!" Trump tweeted Thursday, less than a week before Fed leaders meet to set rates.
America's expanding federal deficit is an anomaly among developed nations around the world. Nearly all other advanced economy countries are on track to see their debt shrink as a share of their economy over the next five years, according to the International Monetary Fund.
Some economists, particularly on the left, warn against expressing alarm over the widening deficit, arguing that because inflation remains low there is little reason to fear higher deficits.
In January, former Obama administration economists Jason Furman and Lawrence Summers penned an op-ed calling for Washington to "end its debt obsession," casting doubt on the nightmarish predictions of some deficit hawks. And liberal presidential candidates have unveiled plans to spend tens of trillions of dollars in federal money.
"If the deficit is helping to support demand, and that support is keeping us moving forward, then I see no reason to complain about the fact that the deficit has increased," said Stephanie Kelton, an economist at Stony Brook University who has served as an adviser to Sen. Bernie Sanders (I-Vt.).
Republican policymakers have made little noise about the deficit under Trump, a contrast with their dire predictions about rising red ink under President Obama.
In 2013, when federal debt totaled $16.7 trillion, Trump tweeted: "Obama is the most profligate deficit & debt spender in our nation's history." The federal government is now more than $22 trillion in debt, according to the White House.
Mike Pence, now the vice president, said in October 2016 that the debt increases under the Obama administration were "atrocious."
Mick Mulvaney, the president's acting chief of staff, held a series of "Spending, Debt and Deficit" town halls under Obama and repeatedly criticized lawmakers of both parties for increasing the deficit, including over relief funding for Hurricane Sandy.
White House officials have previously said they remain optimistic that the growth spurred from the tax law will eventually yield lower deficits.
"I just need another couple of years --- and I said this at the time --- to let the revenues fill in if we get the kind of growth that we are hoping for," Larry Kudlow, Trump's top economic adviser said in June.