By Tom Ozimek
As President Joe Biden on Monday touted his apparent deficit-cutting mettle, a nonpartisan fiscal policy research group warned of an “unprecedented” explosion in the federal budget deficit, which it said is on track to double to $2 trillion this year.
In a Labor Day speech in Philadelphia on Monday, President Biden touted his economic policies while taking a series of jabs at his predecessor, President Donald Trump.
“Unlike the last president, in my first two years … I cut the deficit $1.7 trillion,” President Biden boasted.
What President Biden failed to mention, however, is that most of the massive deficit drop in 2022 was a one-off, driven by what experts say was a one-time inflation-related explosion in tax revenue and capital gains.
And while the president touted his supposed deficit-slashing accolades, the Committee for a Responsible Federal Budget (CRFB), a nonpartisan organization that seeks to educate the public on issues with significant fiscal policy impact, projected that the deficit under the president’s watch would double in 2023 to around $2 trillion.
“Deficits are slated to double this year, from $1 trillion up to $2 trillion, when you exclude student debt cancellation,” CRFB senior vice president Marc Goldwein said in a post on X, the platform formerly known as Twitter.
“This is unprecedented given the economy,” Mr. Goldwein added, referring to the fact that it’s unusual for deficits to rise so sharply when the economy is doing relatively well.
Deficit 122 Percent Higher so Far in 2023
After record government spending in 2020 and 2021 in part to offset the negative economic impact of the COVID-19 pandemic, the federal budget deficit dropped by a record amount in 2022 from near $3 trillion to around $1 trillion.
The Congressional Budget Office (CBO) said in March 2023 that the government took in $4.9 trillion in 2022, with more than half coming from receipts from individual income taxes, which were the highest on record as a percentage of gross domestic product.
In February, the CBO projected that the budget deficit for 2023 would rise to around $1.4 trillion, while projecting that, in coming years, deficits would gradually rise each year, hitting $2.7 trillion in 2033.
But the CRFB’s latest estimate shows that the pace of deficit spending under President Biden’s watch is rising faster than CBO’s February projections and will hit $2 trillion this year.
In a post on X, Mr. Goldwein explained that the 2022 deficit decline could be attributed to a one-time revenue surge (“which is over”) as the economy bounced back from the pandemic, rather than due to factors that can be attributed to “Bidenomics.”
He added that what’s driving the CRFB’s projections for a doubling of the budget deficit is a combination of a rise in spending due to soaring interest rates, higher Social Security and Medicare costs, a lack of Federal Reserve remittances to the U.S. Treasury, and a “big” budget deal.
In March, the CRFB warned that President Biden’s proposed budget for the 2024 fiscal year would send the national debt to a record high within four years.
“Debt under the President’s budget would grow to a new record as a share of the economy over the next decade,” the CRFB wrote in the March 9 analysis.
“It is disappointing that the President continues to propose trillions of dollars in new spending and tax breaks without a plan to put our debt on a sustainable path,” the organization added.
Separately, Treasury Department data shows the year-to-date deficit as of July stood at about $1.61 trillion, the highest amount ever outside of the pandemic.
“Compared to the national deficit of $726 billion for the same period last year (Oct 2021—Jul 2022), our national deficit has increased by $887 billion,” Treasury said in a statement, noting that the deficit was 122 percent higher so far this year compared to the same period last year.
Overall, the national debt has increased by roughly $5 trillion since President Biden assumed office, from roughly $27.8 trillion to around $32.8 trillion.
Deficit ‘Doom Loop’?
As the U.S. central bank has raised its benchmark Fed Funds rate rapidly in a feverish bid to quash soaring inflation, interest payments on government debt have climbed, prompting warnings from prominent economists.
Former Treasury Secretary Larry Summers said in a Bloomberg interview at the end of last year that fiscal debates need to be put “back on the table” as surging borrowing costs risk a potential deficit “doom loop.”
Mr. Summers said that the Biden administration’s big spending initiatives, including the student loan forgiveness that caused the monthly deficit to jump 562 percent, could shake investor confidence.
“If your deficit projection starts to get out of control and your real interest rates start to rise rapidly, you can get into a kind of doom loop,” Mr. Summers told the outlet. “We’re going to need to be watching our own fiscal projections in the United States very carefully.”
The latest monthly budget review from the CBO, released on Aug. 8 (pdf), shows that the government’s expenses have grown while income has fallen—with higher interest payments on public debt being a big factor.
Comparing the first 10 months of fiscal year 2022 to fiscal year 2023 (the Treasury Department’s fiscal years run from Oct. 1 of a given year to Sept. 30 of the following), net interest on public debt is 34 percent higher this year.
The government’s interest rate payments, which are ultimately paid for by taxpayers, were $572 billion so far in fiscal year 2023 compared to $426 billion in the comparable period in fiscal year 2022.
The reason for the jump is because interest rates on all the various forms of U.S. government debt were significantly higher this fiscal year than last year as the Fed has hiked rates aggressively to dampen inflation.
In the face of risks to the nation’s fiscal health, Republicans have taken opportunities—like during recent talks on lifting the debt ceiling cap—to push for spending cuts.
Republicans won some spending concessions during the debt ceiling talks and now, with the prospect of a government shutdown coming into focus once again, some in the GOP are once again beating the drum of fiscal restraint.