The U.S. federal budget deficit is set to double in fiscal year 2023 as falling tax receipts, rising interest rates and continued demand for expiring pandemic relief benefits strain the nation’s finances.
The latest Treasury Department figures show a budget deficit of $1.7 trillion in 2023, up from $1.37 trillion in 2022. Those are the numbers The deficit will be small than last year because of the accounting scare associated with President Biden’s proposed student-loan forgiveness program last year.
That plan was struck down by the Supreme Court this summer and never went into effect. But the Treasury booked it as spending in 2022, pushing up that year’s deficit. After the court killed the plan, the Treasury booked it as savings, artificially reducing this year’s deficit.
Those student loan effects changed the deficit figures for both 2022 and 2023. When they are calculated, the deficit will rise from about $1 trillion in 2022 to $2 trillion in 2023, administration officials confirmed on a call with reporters on Friday.
In other words, the Treasury assumed it saved $300 billion by 2023, when all it actually did was replace a rate that never existed.
By raising taxes on high-income earners and corporations, Mr. Officials downplayed the increase in press releases announcing deficit totals, focusing on Biden’s proposals.
“The Biden administration remains focused on leading the transition of our economy to healthy and sustainable growth,” said Treasury Secretary Janet L. Yellen said in the release. “As we do, the president and I are committed to addressing the challenges to our long-term fiscal outlook.”
The widening gap between what the government spends and what it earns comes at an awkward moment, as the president looks to a divided Congress for aid to Israel and Ukraine. Amid concerns about government spending and whether the U.S. could finance two wars.
Republicans — who helped run large budget deficits with tax cuts and increased spending while they were in power — have begun pushing for deeper budget cuts in order to reduce the federal deficit. The widening deficit means getting Congress to agree to a series of spending bills that must be passed next month to avert a government shutdown will be even more challenging.
On Friday, Mr. Biden’s administration has 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 new efforts to improve US border security.
Ms. Yellen said this week that the United States was able to absorb those costs.
“The United States can certainly stand with Israel and support Israel’s military needs, and support Ukraine in its fight against Russia,” Ms Yellen told Sky News.
Despite worries in Washington and on Wall Street about the tight fiscal path, lawmakers have been unable to coalesce around plans to enact meaningful spending cuts or tax increases. The impasse in the House of Representatives, which has been unable to elect a speaker since Republicans ousted Rep. Kevin McCarthy this month, has prevented Congress from passing any legislation or short-term spending packages.
Economists and deficit hawks warn that the current path of borrowing is unsustainable, especially if rates remain high for long.
The national debt was $33 trillion this year, and financial watchers warn that within the next three decades, debt interest costs will be the nation’s biggest expense. Congressional Budget Office By 2053, the public’s federal debt 177 percent of GDP.
The Treasury said on Friday that net interest on the debt would increase to $659 billion in 2023 from $475 billion last year. The Peterson Foundation, a financial watchdog, noted Friday that $10.6 trillion in net interest costs over the next decade will be more than double what the U.S. has spent on interest over the past 20 years.
“I believe we’ve reached a critical moment — our fiscal affairs are completely off track,” Kent Conrad, a senior fellow at the Bipartisan Policy Center, told lawmakers Thursday at a congressional hearing on the need for a new fiscal commission. “Rising deficits and debt are an economic and national security concern.”
Deficits have increased this year due to a number of factors, including delays in collecting tax revenue as a result of severe weather and the unexpected high costs of some federal programs. For example, the Internal Revenue Service is paying billions of dollars in tax refunds related to the Employee Retention Credit, a pandemic-era benefit that was recently suspended due to concerns about fraud.
The Biden administration hopes to rely on a beefed-up IRS to boost tax collections, securing $80 billion in new funding as part of last year’s climate legislation. While the agency has had some early success in cracking down on tax evasion, it already faces the prospect of losing a quarter of that funding. A Congressional Budget Office report this week predicted $25 billion would be cut from the IRS budget Add a deficit of more than $24 billion.
In 2017, former President Donald J. Biden administration officials sought to blame the deficit on Trump. Those cuts have reduced federal revenue and increased the deficit since they were enacted, analysts agree. Some officials agree that the deficit has grown significantly more than the administration had predicted last year. A Congressional Budget Office analysis suggests the unexpected growth is the result of higher borrowing costs and a decline in tax revenue.
That decline was attributed to falling capital gains tax receipts, increased claims — possibly fraudulent — for a pandemic-era tax break and the I.R.S. Decision to delay tax filing deadline for people in California and other states hit by natural disasters
“The increase in the deficit last year was largely due to a sharp drop in tax revenue, while spending on programs other than Social Security, Medicare and Medicaid actually fell slightly as a share of the economy,” Mr. Biden’s National Economic Council. “As budget analysts warn, Trump tax cuts for the wealthy and big corporations are increasing the deficit and our national debt.”
Mr. Biden has proposed more than $2 trillion in tax increases and other measures to reduce future deficits in this year’s budget. He signed two tax increases into law: a minimum tax for large corporations and a tax on stock repurchases. He has increased funding for the IRS to crack down on tax evasion and attract more revenue. Those measures will reduce the deficit from what it has been, but not enough to offset the overall growth in the deficit in the coming years.
Some administration officials agree that the president should propose more comprehensive deficit reduction — certainly in the form of higher tax increases on high-income earners and corporations — if interest costs don’t fall in the future.
Expiring in 2025, Mr. Top Democrats in Congress say the sharp increase in borrowing costs will embolden them to fight against Trump’s tax cuts, or at least Republican efforts to make permanent rules that benefit high earners and corporations. Mr.
“We’re in a very different interest rate environment today than we were a year ago — about a 180-degree difference,” said Rep. Brendan F. of Pennsylvania, the top Democrat on the budget committee. Boyle said in an interview.
“As we continue to reduce inflation — and all the trends are pointing in the right direction — I believe you’ll see those interest rates come down, which will give us some relief when it comes to the deficit,” he added. . “But there’s no question as we look to 2025, and the expiration of the Trump tax cuts, we need more revenue.”
Republicans have focused more on controlling spending on social safety net programs like Social Security and Medicare, which are the largest and most expensive federal programs.
“The mandatory spending and entitlement programs are driving the debt, and if we don’t address them we will really bankrupt this country,” said Rep. Jody C. of Texas, the Republican chairman of the House Budget Committee. Arrington said. , said this week.
Despite the relative strength of the US economy internationally, its long-term fiscal problems are a matter of concern for global economic policymakers.
“Fiscal policy is very loose at this point,” said Geeta Gopinath, first deputy managing director of the International Monetary Fund, in an interview last week. “We think it’s time for fiscal consolidation and rebuilding buffers.”
Ben Casselman Contributed report.
