The US budget deficit rose in fiscal year 2023, which is likely to complicate Congress’ efforts to reach a federal spending deal before government funding runs out next month.
The deficit reached $1.7 trillion for the most recent fiscal year, which ended on September 30, according to Treasury Department data released on Friday. This represents an increase of $320 billion, or 23%, from the previous fiscal year.
However, the deficit would essentially double to about $2 trillion if the impact of President Joe Biden’s federal plan to cancel student debt — which the Supreme Court struck down before it could take effect — was not included.
The US Treasury listed the fiscal year 2022 deficit at $1.4 trillion because it took into account the cost of the president’s proposal. Otherwise, the deficit would have been closer to a trillion dollars.
The agency then recorded the cancellation of the cancellation plan in order to save money for the fiscal year 2023, reducing the size of the deficit to $1.7 trillion.
“We are a debt-addicted nation,” said Maya McGinnis, chair of the nonpartisan Committee for a Responsible Federal Budget. “With the economy growing and unemployment near record lows, this was the right time to instill fiscal responsibility and reduce our deficit,” he added.
The country’s huge debt burden will become more expensive in the coming years as interest payments rise.
“We are seeing in real time a painful combination of rising debt, inflation and interest costs, all of which lead to more debt,” said Michael Peterson, CEO of the Peter J. Peterson Foundation, a nonpartisan organization that seeks to raise awareness about the debt issue. Long-Term Fiscal Challenges Facing the United States “Interest costs have risen nearly 40% in the past year, and soon we will be spending more on interest than we do on national defense.”
The significant decline in tax revenues also contributed to the growth of the deficit.
More than 40% of the jump is due to lower tax revenues, according to Bernard Yaros, chief US economist at Oxford Economics. Individual income tax revenues fell because stock market weakness in 2022 depressed capital gains and because the Internal Revenue Service extended tax deadlines for much of California and parts of Alabama and Georgia due to natural disasters.
In addition, increased spending on entitlement programs, including Social Security and Medicare, as well as on Medicaid accounts for just over a quarter of the widening of the budget deficit, Yaros said. The increasing number of Social Security beneficiaries and an 8.7% cost-of-living adjustment for 2023 fueled by inflation contributed to the rise in expenses.
The annual deficit data will likely take into account Congress’s already fraught negotiations over funding federal agencies for fiscal year 2024. Lawmakers passed the stopgap spending measure on Sept. 30, just before the federal government was set to shut down. It extended federal funding through November 17.
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