US Federal Deficit Skyrockets in Fiscal Year 2023
The US budget deficit witnessed a significant surge in the fiscal year 2023, posing challenges for Congress as they work towards a federal spending agreement before the impending government funding expiration next month.
Data from the Treasury Department, released on Friday, reveals that the deficit for the fiscal year ending September 30 stood at $1.7 trillion. This is a sharp increase of $320 billion, or 23%, compared to the previous fiscal year.
However, when one excludes the impact of President Joe Biden's federal student debt cancellation plan – a proposal that was later nullified by the Supreme Court – the deficit effectively doubles, reaching approximately $2 trillion.
For the fiscal year 2022, the Treasury Department recorded the deficit at $1.4 trillion, factoring in the costs associated with the president's debt cancellation proposal. Without this proposal, the deficit would have been around $1 trillion. The subsequent reversal of this plan by the Supreme Court was recorded as a fiscal saving for 2023, bringing the deficit down to the reported $1.7 trillion.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, commented on the situation, stating, “We are a nation addicted to debt.” She emphasized that the current economic growth and low unemployment rates should have been an opportunity to exercise fiscal responsibility.
The increasing national debt will pose further challenges in the future, especially with rising interest payments. Michael Peterson, CEO of the Peter G. Peterson Foundation, highlighted the alarming combination of escalating debt, inflation, and interest costs. He noted that interest costs surged by nearly 40% in the past year, and soon, the US might end up spending more on interest than on national defense.
A significant factor contributing to the deficit's growth was a substantial decline in tax revenue. Bernard Yaros, lead US economist for Oxford Economics, attributed over 40% of this increase to reduced tax revenues. Factors like a weak stock market in 2022, which led to decreased capital gains, and extended tax deadlines for parts of California, Alabama, and Georgia due to natural disasters, resulted in diminished individual income tax receipts.
Furthermore, heightened spending on entitlement programs, such as Social Security, Medicare, and Medicaid, accounted for about a quarter of the deficit expansion. The rising number of Social Security beneficiaries and an 8.7% inflation-driven cost-of-living adjustment for 2023 played a role in the increased expenditures.
This annual deficit data is anticipated to play a crucial role in Congress' ongoing negotiations regarding the funding of federal agencies for the fiscal year 2024. To prevent a government shutdown, lawmakers approved a temporary spending measure on September 30, which extends federal funding until November 17.