The U.S. government announced a $1.695 trillion budget deficit for fiscal 2023 on Friday, a 23% increase from the previous year as a result of declining income and rising spending for Social Security and Medicare, and historically high-interest rates on the national debt.
According to the Treasury Department the deficit was the biggest since a $2.78 trillion hole brought on by COVID in 2021. After back-to-back declines during President Joe Biden’s first two years in office, it represents a significant return to rising deficits.
In addition to financing for U.S. border security and the Indo-Pacific area, Biden is asking Congress for $100 billion in new security and international aid spending, including $60 billion for Ukraine and $14 billion for Israel.
The large deficit, which exceeded all pre-COVID deficits, including those resulting from Republican tax cuts enacted under Donald Trump and from the years of the financial crisis, is likely to fuel Biden’s fiscal conflicts with Republicans in the House of Representatives, whose demands for spending cuts brought the United States to the verge of default over the debt ceiling in early June.
The U.S. House of Representatives Speaker Kevin McCarthy was removed as part of a deal to avoid a government shutdown over demands from Republican hardliners for deeper spending cuts, and the party is still split over who should be in charge. This is expected to make negotiations ahead of a new fiscal deadline in mid-November more challenging.
The deficit for September, the last month of the fiscal year, decreased from $430 billion in September 2022 to $171 billion in September 2018.
In a joint statement, Treasury Secretary Janet Yellen and Office of Management and Budget Director Shalanda Young stated that “falling revenues are a significant contributor to the 2023 deficit, underscoring the importance of President Biden’s enacted and proposed policies to reform the tax system.”
Due to the Supreme Court’s ruling that President Biden’s student debt forgiveness program was illegal, the fiscal 2023 deficit was $321 billion lower than it otherwise would have been. The decision compelled the Treasury to undo an anticipatory charge against the fiscal 2022 budget outcomes that raised the deficit in that year.
Deficits totaled $1.375 trillion during the fiscal year 2022.
According to a Treasury official, the deficit for this fiscal year would be closer to $2 trillion, and the deficit for the previous fiscal year would have been closer to $1 trillion if the two one-time adjustments weren’t made.
INTEREST FEES FOR THE RECORDS
Biden’s two years of declining deficits as COVID-19 spending dropped came to an abrupt halt with the 2023 deficit. With tax revenues severely constrained by the worst economic crisis since the 1930s and expenditure on unemployment compensation, direct payments to consumers, and business assistance reaching a peak, the U.S. deficit reached its highest level in fiscal 2020, reaching $3.13 trillion.
However, the Congressional Budget Office has issued a warning that the U.S. deficit will resemble COVID-era levels by the end of the decade, hitting approximately $2.13 trillion in 2030 as interest, health, and pension expenditures rise.
Total revenues for the fiscal year 2023 decreased by $457 billion, or 9%, from the previous year to $4.439 trillion, primarily as a result of a decline in non-withheld individual income tax payments and a decline in stock prices and other financial asset performance as interest rates increased.
Federal Reserve earnings fell by $106 billion as interest on bank deposits consumed all portfolio income, among other revenue declines.
Spending for fiscal 2023 decreased by $137 billion, or 2%, from the prior year to $6.134 trillion. If not for significant increases in the cost of debt servicing as well as retirement and healthcare benefits for the elderly, expenditures would have been less than they were.
Due to cost of living adjustments for inflation, Social Security spending increased 10% to $1.416 trillion, and Medicare senior healthcare spending increased 4% to $1.022 trillion.
The cost of interest on the nation’s record $33 trillion debt increased considerably as well, rising 23% to $879 billion. According to a Treasury official, net interest payments—which exclude intergovernmental transfers to trust funds—rose 39% to $659 billion, also a record.
The official reported that the gross share of interest payments, at 3.28% of GDP, was the largest since 2001,, and the net share, at 2.45%, was also the largest since 1998.
Since the Federal Reserve increased borrowing costs to tame inflation, interest rates have risen sharply. The average interest rate on the Treasury’s outstanding debt increased from 2.07% to 2.97% in the most recent fiscal year.
