The economy boomed in the three quarters that followed last year’s Republican tax reform, but economic news has become more mixed of late with a topsy-turvy stock market and Mr. Trump’s tariff war beginning to affect bottom lines and employment. Now comes more news about the deficit that should rankle any fiscal conservatives who remain in Congress or the country at large.
The fiscal year for the US government ended in September and the figures on the federal budget deficit are not good. In fact, even though the US economy is booming, the deficit is the largest deficit run by the government in six years. The deficit for the 2018 fiscal year was $779 billion, a 17 percent increase over the $666 billion deficit in fiscal 2017. The last time the deficit was higher was in 2012 when Barack Obama presided over a deficit of more than a trillion dollars.
The deficit is the difference between what the federal government spends and what it earns. When the federal government spends more than it receives in revenues, as it has every year since 1960 (with the exception of 1998), it must borrow the difference. Each annual deficit is added to the mountain of federal debt which currently stands at more than $21 trillion.
According to Treasury Department statistics, flat federal revenues were part of the deficit problem. Total federal receipts were $3.329 trillion in 2018compared with $3.316 trillion in 2017. FY 2018 included three months – October, November and December 2017 – at higher tax rates. This means that the 2019 revenue picture looks even worse.
Under tax reform, withholding was lowered in February for individual taxpayers. Despite this, tax receipts from individuals increased by one percent. Tax payments by businesses fell more than 30 percent for the year, however.
Republicans argue that the tax reform is fueling economic growth, which will eventually lead to higher tax revenues. Nevertheless, Kevin Hassett, chairman of the Council of Economic Advisers, admits that spending and the deficit are big problems.
“The deficit is absolutely higher than anyone would like,” Hassett told Bloomberg last week. “As you watch our next budget come out — and you’ll start to see things in the next few weeks — then you’ll see a much more aggressive stance” on spending issues.
It is perhaps ironic that the Republican deficit hawks would preside over a blowout in the deficit. It is unsurprising, however. Historically, the only thing the parties have been able to agree on is borrowing and spending at ever higher levels and the problem seems to get worse when one party controls both Congress and the White House.
Regardless of the outcome of the election, the deficit problem seems unlikely to change any time soon. Unless federal revenues can be increased or spending can be cut, the 2019 federal deficit is forecast to be on the wrong side of a trillion dollars once again.
Originally published on October 16, 2018