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: 500286

Reported Deaths: 9968
CountyCasesDeaths
Harrison34281537
DeSoto32039402
Hinds31911626
Jackson24466379
Rankin21971390
Lee15501235
Madison14566279
Jones13825242
Forrest13438250
Lauderdale11984316
Lowndes11003188
Lamar10510135
Pearl River9494237
Lafayette8542139
Hancock7727126
Washington7418157
Oktibbeha7139131
Monroe6765176
Warren6679176
Pontotoc6655102
Neshoba6625206
Panola6511131
Marshall6460134
Bolivar6302148
Union601294
Pike5815152
Alcorn5662101
Lincoln5431134
George496579
Scott472198
Tippah468381
Prentiss466581
Leflore4654144
Itawamba4628105
Adams4584119
Tate4579109
Copiah447792
Simpson4440116
Yazoo443687
Wayne439172
Covington428694
Sunflower4235105
Marion4225107
Coahoma4154104
Leake408088
Newton381679
Grenada3703108
Stone359764
Tishomingo359492
Attala331089
Jasper329565
Winston314091
Clay307676
Chickasaw299467
Clarke292194
Calhoun278945
Holmes267887
Smith263350
Yalobusha233347
Tallahatchie226851
Walthall218763
Greene218248
Lawrence212440
Perry205256
Amite204755
Webster202646
Noxubee186440
Montgomery179456
Jefferson Davis171442
Carroll168738
Tunica159439
Benton148438
Kemper141941
Choctaw133326
Claiborne132237
Humphreys129238
Franklin119428
Quitman106428
Wilkinson104839
Jefferson94434
Sharkey64020
Issaquena1937
Unassigned00

Alabama Coronavirus Cases

Cases: 815989

Reported Deaths: 15311
CountyCasesDeaths
Jefferson1144621915
Mobile723961330
Madison52114694
Shelby37488348
Baldwin37167547
Tuscaloosa35013606
Montgomery34031734
Lee23177245
Calhoun22190476
Morgan20719376
Etowah19774497
Marshall18277302
Houston17333411
St. Clair15967339
Cullman15365292
Limestone15270198
Elmore15126284
Lauderdale14205294
Talladega13783276
DeKalb12598260
Walker11142369
Blount10132175
Autauga9910146
Jackson9819182
Coffee9190191
Dale8874185
Colbert8803201
Tallapoosa7063198
Escambia6755130
Covington6695184
Chilton6608161
Russell626659
Franklin5947105
Chambers5563142
Marion4966126
Dallas4902200
Clarke474083
Pike4722105
Geneva4567126
Winston4493103
Lawrence4286117
Bibb423686
Barbour356576
Marengo337489
Monroe330863
Randolph328263
Butler325396
Pickens314182
Henry311865
Hale310688
Cherokee301660
Fayette291379
Washington251151
Cleburne247160
Crenshaw244075
Clay241268
Macon231763
Lamar219547
Conecuh185753
Coosa179439
Lowndes174464
Wilcox167839
Bullock151644
Perry138440
Sumter132038
Greene126244
Choctaw87827
Out of AL00
Unassigned00
Tupelo
Partly Cloudy
63° wxIcon
Hi: 80° Lo: 60°
Feels Like: 63°
Columbus
Cloudy
63° wxIcon
Hi: 83° Lo: 65°
Feels Like: 63°
Oxford
Partly Cloudy
54° wxIcon
Hi: 76° Lo: 54°
Feels Like: 54°
Starkville
Cloudy
64° wxIcon
Hi: 81° Lo: 63°
Feels Like: 64°
More high pressure will move back into our area overnight and into our Friday. This high pressure will bring back into our area some more dry and seasonable weather for a few days.
WTVA Radar
WTVA Temperatures
WTVA Severe Weather