U.S. Government Deficit Grew 17% In Fiscal 2018 Sets A Record
The federal deficit widened last year amid higher government spending—including rising interest costs on the debt and increased funding for the military—and flat revenues following last year’s tax cut. U.S. Government Deficit Grew 17% In Fiscal 2018 Sets A Record In 2019 (#GotBitcoin?)
Tax-law changes led to flat revenue in fiscal 2018, U.S. Treasury says.
The government ran a $779 billion deficit in the fiscal year that ended Sept. 30, the Treasury Department said Monday. That is the largest annual deficit in six years and 17% higher than the $666 billion deficit in fiscal 2017. As a share of gross domestic product, the deficit totaled 3.9%, up from 3.5% a year earlier and the third consecutive increase.
The deficit would have been even higher if not for shifts in the timing of certain payments, Treasury said.
Government receipts held steady at $3.3 trillion, despite strong economic growth and a robust labor market. The low unemployment rate, which hit 3.7% in September, coupled with rising wages would typically drive government tax revenue higher.
But individual withheld income taxes rose just 1% in fiscal 2018, and corporate tax receipts declined 31%—both reflecting changes implemented as part of the sweeping tax overhaul enacted in December.
Trump administration officials had argued last year the new tax law would generate enough economic growth to offset the costs of a tax cut. Treasury Secretary Steven Mnuchin went further, at times saying the changes would actually help reduce the deficit. Monday’s report showed that, so far, that is not happening.
More broadly, declining government revenues and long-term costs associated with an aging population, including higher Social Security and Medicare spending, are expected to continue pushing up deficits over the coming decades.
White House budget director Mick Mulvaney said Monday the growing economy will create increased government revenues, “an important step toward long-term fiscal sustainability,” he said.
“Going forward, President Trump and this administration will continue to work with Congress to make the difficult choices needed to bring fiscal restraint, which, when matched with increasing revenue, will reduce our deficit,” Mr. Mulvaney said.
Monday’s report showed, however, that government spending as a share of GDP actually declined in fiscal 2018, to 20.3% from 20.7% a year earlier. And tax revenue declined even more, to 16.5% of GDP from 17.2%.
After the tax law was enacted last year, companies became able to take advantage of a new, lower corporate tax rate and immediately deduct the full value of equipment purchases—changes that weighed on corporate tax receipts, the senior Treasury official said. Starting in February, employers started using new withholding tables under the law, reducing the share of income withheld from workers’ paychecks.
At the same time, government spending rose 3% last year, to $4.1 trillion. Increases in interest rates and the amount of total debt outstanding drove up interest costs 14% last year from fiscal 2017, or $65 billion. Spending on defense military programs also increased 6%, or $32 billion, and Social Security costs rose 4%, or $39 billion.
Mr. Mnuchin on Monday defended Mr. Trump’s push to increase military spending last year, culminating in a congressional budget agreement that would increase government spending by almost $300 billion over two years above limits set in a 2011 law.
U.S. Deficit Tops $1 Trillion In First 11 Months of Fiscal Year, Treasury Says
The deficit, up 19% compared with a year ago, has exceeded $1 trillion for the first time since 2012.
The U.S. budget gap widened to more than $1 trillion in the first 11 months of the fiscal year, the Treasury Department said Thursday, the first time deficits have topped that amount in seven years.
Higher spending on the military, rising interest expenses on government debt and weak revenues early in the fiscal year combined to push the deficit up 19% from October through August, compared with the same period a year earlier. Government spending climbed 7%, to $4.1 trillion, outpacing higher federal tax receipts, which grew 3%, to $3.1 trillion.
That brought the total deficit to $1.07 trillion so far in fiscal 2019, which started Oct. 1, or 4.4% as a share of gross domestic product.
A strong economy typically leads to narrower deficits, as rising household income and corporate profits help boost tax collections, while spending on safety-net programs such as unemployment insurance tends to decline.
The U.S. economy has been growing for 10 years as of July, the longest economic expansion on record. Yet annual U.S. deficits are on track to exceed $1 trillion starting this year, due in part to the 2017 tax law, which constrained federal revenue collection last year, and a 2018 budget deal that busted spending caps enacted in 2011.
Senior Treasury officials attributed this year’s higher deficit primarily to a surge in government spending, and emphasized that federal revenues have climbed nearly 7% since May, in large part reflecting a robust economy and low unemployment. Corporate tax revenue in particular has rebounded in recent months, after a period when analysts were unsure why it was running below Congressional Budget Office projections.
Still, revenue growth has continued to lag the broader economy, and is below where forecasters projected it would be prior to the 2017 tax cuts.
Federal spending has continued to climb. The Treasury said Thursday spending on the military and interest costs on government debt each rose 9% from October through August, and Medicare expenses increased 10%.
More broadly, annual deficits are projected to more than double as a share of the economy over the coming decades, as a wave of retiring baby boomers pushes up federal spending on retirement and health-care benefits.
Those deficits have led the Treasury to ramp up borrowing in recent years. The government said it expected to borrow more than $1 trillion for the second year in a row in 2019. U.S. Government Deficit Grew,U.S. Government Deficit Grew,U.S. Government Deficit Grew,U.S. Government Deficit Grew