US Government Posts Record Budget Deficit, Fueling Fiscal Battles and Concerns
The US government faced a hefty blow as it posted a staggering $1.695 trillion budget deficit for fiscal 2023. This marks a significant 23% increase from the previous year and the largest deficit since the Covid-19 pandemic-induced deficit of $2.78 trillion in 2021. Falling revenues and increased spending on Social Security, Medicare, and interest costs on the federal debt contributed to the rising deficit.
President Joe Biden’s administration is further seeking $100 billion in new foreign aid and security spending, aiming to allocate $60 billion for Ukraine and $14 billion for Israel. However, this move is expected to intensify Biden’s fiscal battles with Republicans in the House of Representatives and make negotiations more challenging.
The deficit for September, which marks the final month of the fiscal year, stood at $171 billion, indicating some improvement compared to the $430 billion deficit recorded in September 2022. Falling revenues played a significant role in contributing to the deficit, highlighting the importance of President Biden’s enacted and proposed tax reforms.
It is worth noting that the Supreme Court striking down Biden’s student loan forgiveness program as unconstitutional played a role in reducing the fiscal 2023 deficit by $321 billion. However, considering one-off adjustments, last fiscal year’s deficit would have been closer to $1 trillion, while this year’s deficit would have been closer to $2 trillion.
The significant deficit increase in 2023 puts an end to two years of declining deficits for Biden as Covid-19 spending wanes. Alarmingly, the Congressional Budget Office warns that US deficits will approach levels seen during the Covid-19 era by the end of the decade.
Total revenues for fiscal 2023 witnessed a substantial 9% decrease from the previous year. This drop was mainly due to a decrease in non-withheld individual income tax payments and lower performance in stocks and other financial assets. On the other hand, outlays for 2023 experienced a modest decrease of 2% from the previous year, with notable increases in spending on retirement and healthcare benefits for the elderly.
Notably, Social Security spending rose by 10% and Medicare spending rose by 4%. Interest costs on the federal debt also surged by 23%, reaching a record high of $879 billion. The rise in interest rates over the last year and a half played a significant role, with the average interest cost on the Treasury’s outstanding debt reaching 2.97% in fiscal 2023.
As an important issue that impacts the nation’s financial health, the record budget deficit has become a focal point of concern. The Biden administration will need to navigate the challenges posed by a divided Congress to address the rising deficit while ensuring the stability and growth of the US economy in the coming years.
