CBO: Federal Deficit Continues to Grow
Federal deficit could exceed $1 trillion annually by 2020
The federal deficit increased to $782 billion in Fiscal Year 2018 and is likely to exceed $1 trillion per year by 2020, the Congressional Budget Office (CBO) reports.
“Monthly Budget Review for September 2018,” published by CBO in October, estimates the federal budget deficit has grown by $116 billion since Fiscal Year 2017.
The deficit also increased as a percentage of Gross Domestic Product (GDP) for the third consecutive year.
Spending Speeding Up
Richard Ebeling, a professor of economics at The Citadel and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the persistent federal budget deficits are caused by excessively rapid spending increases, not revenue shortfalls.
“In simplest terms, government budget deficits increase when spending grows at a faster rate than tax revenues are increasing.” Ebeling said. “In the case of the United States, for the Fiscal Year that ended September 30, 2018, Uncle Sam took in approximately $3.33 trillion in tax revenues, while total spending for the fiscal year was around $4.11 trillion, resulting in a budget deficit of about $782 billion.”
Stifling the Economy
Chris Edwards, director of tax policy studies at the Cato Institute, says most government spending consists of handouts to various groups of people and is harmful to the economy.
“The vast majority of federal spending is welfare and subsidy spending, which is negative for the economy,” Edwards said. “It reduces GDP and overall incomes.”
Ebeling says deficit spending in itself slows economic growth.
“The deficit represents that portion paid for through borrowed dollars rather than taxes collected,” Ebeling said. “The government siphoned out of the financial markets $782 billion dollars to cover its own spending that otherwise would and could have been available for consumers and investors to borrow for private sector uses. This means, especially, that private investment essential for long-term general economic growth may be slowed down, reducing improvements in people’s standards of living.”
The Elephant in the Room
Elected officials in both major political parties share the blame for the fiscal mayhem, Ebeling says.
“Government spending and the deficit are bipartisan problems,” Ebeling said. “No politician wants to go before his constituents and tell them that the finances of the federal government are such that some of the government handed-out goods, in the form of programs and spending, are not sustainable in the longer run and require reductions and cuts.”
The deficit-spending mentality assumes other countries will continue lending money to the U.S. government in perpetuity, Edwards says.
“Federal politicians don’t worry about deficits anymore because credit markets are global.” Edwards said. “The U.S. government can seemingly borrow endlessly, so interest rates haven’t risen.”
Owen Macaulay (email@example.com) writes from Hillsdale, Michigan.
“Monthly Budget Review for September 2018,” Congressional Budget Office, October 5, 2018: https://www.heartland.org/publications-resources/publications/monthly-budget-review-for-september-2018