By Tom Ozimek
The U.S. annual budget deficit has increased 23 percent from last year, to just under $1.7 trillion, prompting one fiscal policy expert to remark that “we are a nation addicted to debt.”
The budget deficit was $320 billion higher this year than the last, hitting $1.695 trillion, according to the Treasury Department’s final monthly treasury statement for the entire fiscal year 2023, which ended on Sept. 30.
The last time a higher budget gap was recorded was in 2021 when a surge in pandemic relief spending pushed the deficit to a record $2.78 trillion.
While the latest budget deficit was over $1 trillion lower than the record-breaking gap in 2021, some experts say it’s uncomfortably high and should be addressed urgently.
“We are a nation addicted to debt,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), said in a statement, adding that the true amount of borrowing is higher but is being undercounted due to accounting issues.
“The deficit totaled $1.7 trillion in Fiscal Year 2023, but we actually borrowed $2 trillion when you fix the accounting around President Biden’s reversed student debt cancellation plan,” she said. “That means borrowing doubled from last year. With the economy growing and unemployment near record lows, this was the time to instill fiscal responsibility and reduce our deficits.”
With rates on U.S. Treasury securities at roughly 15-year highs, interest payments on government debt have exploded higher and, at this rate, “we’ll spend more on interest than national defense by 2027,” Ms. MacGuineas warned.
“In the face of legitimate emergency needs like natural disasters or foreign conflicts, these interest burdens mean we are not as nimble as we otherwise could be to respond,” she said.
Yellen Blames Low Tax Receipts
Treasury Secretary Janet Yellen blamed a drop in government revenues as a key factor driving the deficit higher this year.
Collecting more taxes would be the fix, she suggested, touting the Biden administration’s plans to ramp up tax collections to put more money in government coffers.
“Falling revenues are a significant contributor to the 2023 deficit, underscoring the importance of President Biden’s enacted and proposed policies to reform the tax system,” Ms. Yellen said in a joint statement, along with Office of Management and Budget Director Shalanda Young. was
Federal tax receipts fell 9.3 percent in 2023 compared to last year, nearly all of the drop due to a $456 billion decline in individual income taxes.
Another major contributor to lower government revenue was a $106 billion lower contribution of Federal Reserve profits to the Treasury due to higher interest rates.
Partially offsetting the drops in revenue was a $131 billion higher social insurance and retirement receipts as wages rose.
Total federal borrowing from the public rose by $2 trillion during fiscal 2023 to $26.2 trillion.
As a percentage of gross domestic product (GDP), borrowing from the public grew from 96 percent at the end of fiscal 2022 to 98 percent at the end of fiscal 2023.
Ms. Yellen also gave a nod to concerns about high deficits—but insisted the Biden administration is doing something about it.
“The Biden Administration continues to focus on navigating our economy’s transition to healthy and sustainable growth,” she said. “As we do, the President and I are also committed to addressing challenges to our long-term fiscal outlook.”
A key part of the Biden administration’s effort to address deficits over the long term is collecting more taxes from wealthier Americans and corporations, she said.
National Debt Pushes Higher
Since the beginning of October, the national debt has shot up sharply.
The latest Treasury data show that, as of Oct. 18, the total outstanding public debt hit $33.63 trillion. That’s roughly $500 billion higher than where it was on the final reporting day in September.
At one point in October, the national debt surged $275 billion in a single day.
According to the 2024 White House budget, the national debt is expected to surpass $43 trillion by 2033.
Currently, the debt-to-GDP ratio is at around 100 percent.
A recent report from the Penn Wharton Budget Model estimates that, even under a “best case” scenario, the United States has only around 20 years to put its fiscal house in order.
“Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation),” the report stated.
“Unlike technical defaults where payments are merely delayed, this default would be much larger and would reverberate across the U.S. and world economies,” it added.
The report’s authors warned that the 20-year runway for fixing the nation’s out-of-control spending is based on the assumption that market participants (e.g. people who buy U.S. Treasurys) believe that fiscal corrective actions will take place ahead of time.
“If, instead, they started to believe otherwise, debt dynamics would make the time window for corrective action even shorter,” the report warns.