Unprecedented Explosion in Federal Budget Deficit: On Track to Double to $2 Trillion, Nonpartisan Group Warns
President Joe Biden recently took center stage, touting his deficit-cutting achievements. However, a nonpartisan fiscal policy research group has issued a warning about an unprecedented explosion in the federal budget deficit. The Committee for a Responsible Federal Budget (CRFB) projects that the deficit is on track to double to $2 trillion in 2023, despite the president’s claims of deficit reduction.
In his Labor Day speech, President Biden boasted about reducing the deficit by $1.7 trillion in his first two years, indirectly criticizing his predecessor, President Donald Trump. However, experts argue that the major drop in the deficit in 2022 was a one-off event driven by a temporary surge in tax revenue and capital gains due to inflation.
The CRFB highlights that deficits are set to double this year, reaching $2 trillion, which is an alarming figure given the state of the economy. It is unusual for deficits to rise so sharply when the economy is performing relatively well.
After record government spending to mitigate the economic impact of the COVID-19 pandemic in 2020 and 2021, the federal budget deficit witnessed a significant decline from nearly $3 trillion to around $1 trillion in 2022. This decline was primarily attributed to a surge in tax revenue from individual income taxes, which accounted for more than half of the government’s receipts, reaching their highest level as a percentage of the GDP.
However, the CRFB’s latest estimates suggest that the pace of deficit spending under President Biden’s administration is outpacing the projections made by the Congressional Budget Office (CBO) in February. The CRFB now projects a doubling of the budget deficit to $2 trillion this year due to various factors such as rising interest rates, increased Social Security and Medicare costs, a lack of Federal Reserve remittances, and a sizable budget deal.
Earlier this year, the CRFB warned that President Biden’s proposed budget for the 2024 fiscal year could push the national debt to record highs within four years. The organization expressed disappointment over the lack of a plan to put the country’s debt on a sustainable path, as the president continues to propose significant spending and tax breaks.
Data from the Treasury Department shows that the year-to-date deficit as of July stood at approximately $1.61 trillion, the highest amount ever recorded outside of the pandemic. Compared to the same period the previous year, the deficit has increased by $887 billion, marking a 122 percent rise.
The increase in interest payments on government debt is a significant factor contributing to the growing deficit. The government’s interest rate payments, ultimately funded by taxpayers, reached $572 billion so far in fiscal year 2023, a significant jump from the $426 billion recorded during the comparable period in fiscal year 2022. This rise can be attributed to higher interest rates across various forms of U.S. government debt as the Federal Reserve aggressively increases rates to combat inflation.
Given the risks to the nation’s fiscal health, Republicans have seized opportunities, such as during discussions on raising the debt ceiling, to advocate for spending cuts. They managed to secure some spending concessions in these talks, and with the possibility of a government shutdown looming, Republicans are emphasizing the need for fiscal restraint once again.
The skyrocketing budget deficit under President Biden’s administration raises concerns about the sustainability of the country’s debt and its long-term effects on the economy. While the president claims deficit reduction achievements, experts caution that these reductions were temporary and far from indicative of long-term fiscal stability. The focus must now shift towards addressing the rising deficit and formulating a plan to put the country’s debt on a sustainable trajectory.
