US deficit at highest level since 2012

The US government is running the largest budget deficit in 6 years. The US deficit rose to $779 billion in fiscal year 2018, up 17% from last year. CNN's Christine Romans reports.

Posted: Oct 16, 2018 11:37 PM
Updated: Oct 17, 2018 12:04 AM

There are two things that can expand a deficit: Decreased tax revenues and increased spending. Right now, we have both.

The federal deficit rose 17% in 2018, to $779 billion — the highest since 2012, thanks to a bigger military budget, rising interest costs, and a giant tax cut.

But Republicans, who have historically decried fiscal irresponsibility, only want to talk about spending.

"It's very disturbing," said Senate Majority Leader Mitch McConnell on Bloomberg TV on Tuesday, on the newly released deficit numbers. "And it's driven by the three big entitlement programs that are very popular, Medicare, Social Security, and Medicaid."

Is that true? Let's look at the Treasury tables. In fiscal year 2018, which ended on September 30, overall spending increased by 3%, or $127 billion. The largest spending increases came from interest on the debt ($65 billion) and the Social Security Administration ($39 billion). Then came defense spending, at $32 billion — increases President Donald Trump and other Republicans demanded in budget negotiations. Medicare and Medicaid — programs Trump has promised not to touch — rose by $17 billion total.

What about the tax side? Budget receipts were basically flat overall. Individual non-withheld and self-employment taxes rose by $89 billion, as they should in a good economy when more people are working. Most of that increase came in April, when taxpayers were filing returns for 2017 — before the Trump tax cuts took effect. Congress' Joint Tax Committee has forecast the overall revenue impact of the individual tax cuts to be much larger in 2019, knocking collections down by $189 billion.

Corporate taxes only constitute about 9% of the government's $3.3 trillion in 2018 collections, but they plunged by $93 billion from last year. According to the Congressional Budget Office, about half of that drop came after June, when companies began paying estimated taxes for the 2018 tax year, at the lower post-tax-cut rate. If there had been no tax cut, collections would have been higher.

Translation: Tax cuts played a key role in boosting the deficit in 2018, and are expected to contribute to deficits in the coming years, contrary to claims from the White House and Congressional Republicans that they would "pay for themselves." Treasury Secretary Steven Mnuchin has said that lower tax rates will boost collections when businesses have had enough time to reinvest their savings in growth, but that's not what's happened after previous tax cuts, and it's not what nonpartisan analysts like the Tax Policy Center think will happen after this one.

But here's the more important question: Does any of this actually matter?

As a percentage of gross domestic product, the deficit in 2018 rose to 3.9% from 3.5% last year. That's higher than the 3.2% average over the last 40 years, but it's nowhere near the 9.8% level reached in 2009, at the depth of the financial crisis, or even the 4.5% during the recession of the early 1990s.

And although interest rate payments of $522 billion seem eye-popping, as a percentage of GDP they're also far below levels paid in the 1980s and 1990s, when fiscal austerity first became a Republican political cause.

There's no guarantee, however, that interest rates will stay as low as they have been. The rate on the 3-month Treasury bill has risen from zero three years ago to 2.27% today, making the debt more expensive to service, and Federal Reserve Chair Jay Powell has said he's likely to continue hiking on that upward path. Also, elevated deficits are highly unusual in heady economic times such as these, when the federal government could be curbing the growth of the debt rather than accelerating it.

That's what much of the rest of the developed world is doing: According to an analysis by the Organization for Economic Cooperation and Development, countries in the euro area are projected to decrease their public debt between 2017 and 2019 as a percentage of GDP by about as much as the United States is projected to increase it.

It also matters what the government is going into debt to do, and what kind of returns it will generate.

Lower-income people, for example, are more likely to spend any extra disposable income they might get from a tax cut than rich people, who are probably already meeting all their needs. The Trump tax cuts disproportionately benefit higher-income people, so they are not well targeted to maximize economic growth.

Infrastructure spending — once a favorite Trump objective — would also be a logical reason to rack up debt, since repairing and building out America's roads, train lines, sewer systems, and broadband connections would improve productivity in a way that no other fiscal policy could.

But that's not why U.S. deficits are rising now. They're rising because of tax cuts, and yes, because of an aging population that's going to need to depend on Social Security and Medicare when they retire.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 319948

Reported Deaths: 7371
CountyCasesDeaths
DeSoto22285267
Hinds20719421
Harrison18431317
Rankin13901282
Jackson13718248
Madison10263224
Lee10059176
Jones8467167
Forrest7832153
Lauderdale7261242
Lowndes6517150
Lamar635188
Lafayette6313121
Washington5425137
Bolivar4841133
Panola4670110
Oktibbeha466198
Pearl River4605147
Marshall4574105
Warren4440121
Pontotoc425873
Monroe4157135
Union415777
Neshoba4063179
Lincoln4008112
Hancock386987
Leflore3515125
Tate342486
Sunflower339491
Pike3371111
Alcorn327272
Scott320374
Yazoo314171
Adams308086
Itawamba305178
Copiah299966
Coahoma298784
Simpson298589
Tippah291968
Prentiss284161
Leake272074
Marion271280
Covington267283
Wayne264642
Grenada264087
George252251
Newton248663
Tishomingo231868
Winston230181
Jasper222148
Attala215073
Chickasaw210559
Holmes190474
Stone188433
Clay187954
Tallahatchie180041
Clarke178980
Calhoun174132
Yalobusha167840
Smith164134
Walthall135347
Greene131834
Lawrence131124
Montgomery128643
Noxubee128034
Perry127238
Amite126242
Carroll122330
Webster115032
Jefferson Davis108234
Tunica108127
Claiborne103130
Benton102325
Humphreys97533
Kemper96629
Franklin85023
Quitman82216
Choctaw79118
Wilkinson69632
Jefferson66228
Sharkey50917
Issaquena1696
Unassigned00

Alabama Coronavirus Cases

Cases: 548657

Reported Deaths: 11306
CountyCasesDeaths
Jefferson810031566
Mobile42105831
Madison35690525
Tuscaloosa26173458
Shelby25607254
Montgomery25081614
Baldwin21868314
Lee16278176
Calhoun14719327
Morgan14629285
Etowah14175364
Marshall12453230
Houston10781287
Elmore10293214
Limestone10179157
St. Clair10162251
Cullman9952201
Lauderdale9603250
DeKalb8972190
Talladega8460184
Walker7338280
Autauga7241113
Blount6945139
Jackson6932113
Colbert6413140
Coffee5635127
Dale4928116
Russell454841
Chilton4476116
Franklin431382
Covington4275122
Tallapoosa4138155
Escambia401680
Chambers3728124
Dallas3607158
Clarke353061
Marion3240107
Pike314378
Lawrence3133100
Winston283472
Bibb268564
Geneva257981
Marengo250565
Pickens236962
Barbour234559
Hale227278
Butler224271
Fayette218862
Henry194543
Randolph187544
Cherokee187345
Monroe180041
Washington170539
Macon163051
Clay160059
Crenshaw155957
Cleburne153444
Lamar146837
Lowndes142254
Wilcox126930
Bullock124342
Conecuh113630
Coosa111729
Perry108626
Sumter105732
Greene93634
Choctaw62125
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