US deficit hit $984 billion in 2019, soaring during Trump era

The Boston Globe Finance 1 month ago

The US government’s budget deficit ballooned to nearly $1 trillion in 2019, a $205 billion increase from a year earlier, as America’s fiscal imbalance widened for a fourth consecutive year despite a sustained run of economic growth.

The country’s worsening fiscal picture runs in sharp contrast to President Trump’s 2016 promise to eliminate the federal debt within eight years. Since taking office, Trump has endorsed big spending increases and steered most Republicans to abandon the deficit obsession they held during the Obama administration.

In 2011, the GOP-controlled House of Representatives pushed to pass a constitutional amendment that would require balanced budgets. And the Obama administration created a deficit commission looking for ways to slow the growth of government debt. But those efforts have all fallen away, and now budget experts believe the country will see $1 trillion annual deficits far into the future.

The gap between spending and revenue, referred to as the deficit, grew to $984 billion in the fiscal year that ended Sept. 30, the highest dollar amount since 2012, according to the Treasury Department. The government spent $4.4 trillion on numerous programs and services and brought in $3.5 trillion through taxes and other revenue.

It is unusual for the government to run such a large budget deficit during a period of economic growth because spending on unemployment and other benefits tend to contract and tax revenue often grows. But the White House and Congress have contributed to the deficit’s surge by enacting large spending increases and passing the 2017 tax cut law. The budget deficit was $665 billion in 2017.

US debt is considered one of the safest investments in the world and interest rates remain low, which is why the government has been able to borrow money at cheap rates to finance the large annual deficits. But the costs are adding up. The government spent around $380 billion in interest payments on its debt last year, almost as much as the entire federal government contribution to Medicaid.

Budget experts have also warned that a lack of focus on the deficit could make it much harder for the US government to respond to the next budget crisis, because policymakers will have less flexibility to enact new spending programs if they are devoting hundreds of billions of dollars to interest payments on the debt.

‘‘This is the first time in our history that we are seeing a boom in the economy at the same time deficits are rapidly rising. It’s alarming,’’ said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, which supports reducing the deficit.

The Obama administration and Republicans in Congress enacted a series of measures to reduce the deficit starting in 2011, and those measures — and a growing economy — led the deficit to fall by almost 50 percent. But those gains have been lost by a recent apathy among policy makers about addressing the fiscal imbalance.

‘‘There is very little discussion among Republicans about the deficit, and virtually no serious outreach to Democrats for any sort of bipartisan deal,’’ said Brian Riedl, a budget expert at the Manhattan Institute, a libertarian-leaning think-tank, and former chief economist for Senator Rob Portman, Republican of Ohio. ‘‘The parties are not talking on this issue.’’

The government recorded four straight years of budget deficits that exceeded $1 trillion around the time of the Great Recession, with the worst overrun occurring in 2009 when the deficit reached 9.8 percent of the US economy, the highest level since World War II. A growing economy and steps taken by the Obama administration and Congress shrank the deficit to just 2.4 percent of the economy in 2015, but it slowly began expanding again largely because of spending increases.

Budget experts also say that the 2017 tax cut law has weakened the typical levels of higher tax revenue that come in during economic expansion. The legislation is projected to increase the annual deficit by about $200 billion, or close to $2 trillion over 10 years when factoring in interest payments, according to the non-partisan Congressional Budget Office.

Tax revenues remained roughly flat the first year the law was in effect, despite economic growth of about 3 percent. Tax revenues were modestly higher in fiscal year 2019, aided in part by a 70 percent increase in tariff revenue. White House officials said the 2017 tax cuts would create so much new revenue that it would offset any money lost from lower rates, but there are signs the economy is beginning to slow markedly now.

Overall spending is projected to rise by about 16 percent between 2017 and 2020, largely due to bipartisan deals struck by Congress including a 2018 law that lifted spending limits and disaster relief funding, according to the Committee for a Responsible Federal Budget.

Military spending has risen dramatically under Trump, from about $550 billion annually to more than $700 billion in 2019, and Democrats successfully pushed for increases to other parts of the budget in exchange for their support to boost money for defense.

Lawmakers and aides from both parties also say there are no serious negotiations right now over plans that would bring down America’s federal deficit.

The leading Democratic presidential candidates are running on plans for enormous new spending programs that would likely add to the deficit. Meanwhile, Republicans have demonstrated little appetite for raising tax revenues after dramatically slashing them.

Trump has also promised to unveil a new round of tax cuts as part of his 2020 presidential re-election campaign, although the details and prospects for doing so remain unclear.

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The federal deficit rose to $984 billion in fiscal year 2019, the Treasury Department estimated on Friday, an increase of $205 billion, or a 26%, from 2018.
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