US budget gap soars to $1.7 trillion, largest outside COVID era
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[October 21, 2023] By
David Lawder
WASHINGTON (Reuters) -The U.S. government on Friday posted a $1.695
trillion budget deficit in fiscal 2023, a 23% jump from the prior year
as revenues fell and outlays for Social Security, Medicare and
record-high interest costs on the federal debt rose.
The Treasury Department said the deficit was the largest since a COVID-fueled
$2.78 trillion gap in 2021. It marks a major return to ballooning
deficits after back-to-back declines during President Joe Biden's first
two years in office.
The deficit comes as Biden is asking Congress for $100 billion in new
foreign aid and security spending, including $60 billion for Ukraine and
$14 billion for Israel, along with funding for U.S. border security and
the Indo-Pacific region.
The big deficit, which exceeded all pre-COVID deficits, including those
brought about by Republican tax cuts passed under Donald Trump and from
the financial crisis years, is likely to enflame Biden's fiscal battles
with Republicans in the House of Representatives, whose demands for
spending cuts pushed the U.S. to the brink of default in early June over
the debt ceiling.
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A deal to avoid a government shutdown over deeper spending cut demands
from Republican hardliners led to the ouster of U.S. House of
Representatives Speaker Kevin McCarthy, and the party is still divided
over who should lead them, which is expected to make negotiations ahead
of a new fiscal deadline in mid-November more difficult.
For September, the final month of the fiscal year, the deficit fell to
$171 billion from $430 billion in September 2022.
"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," Treasury Secretary Janet Yellen and
Office of Management and Budget Director Shalanda Young said in a joint
statement.
The fiscal 2023 deficit would have been $321 billion larger, but was
reduced by this amount because the Supreme Court struck down Biden's
student loan forgiveness program as unconstitutional. The ruling forced
the Treasury to reverse a pre-emptive charge against fiscal 2022 budget
results that increased that year's deficit.
The fiscal year 2022 deficit was $1.375 trillion.
Taking into account the two one-off adjustments, last fiscal year's
deficit would have been closer to $1 trillion and this year's closer to
$2 trillion, a Treasury official said.
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The U.S. Capitol building is seen in Washington, U.S., April 6,
2023. REUTERS/Elizabeth Frantz
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RECORD INTEREST COSTS
The 2023 deficit marks an abrupt end to two years of falling
deficits for Biden as COVID-19 spending faded. The U.S. deficit
peaked in fiscal 2020 at $3.13 trillion as the sharpest downturn
since the 1930s severely constrained tax revenues while spending on
unemployment benefits, direct payments to consumers and aid to
businesses peaked.
But the Congressional Budget Office has warned that based on current
tax and spending legislation, U.S. deficits will approach COVID-era
levels by the end of the decade, reaching some $2.13 trillion in
2030 as interest, health and pension costs mount.
For the 2023 fiscal year, total revenues fell $457 billion, or 9%
from fiscal 2022, to $4.439 trillion, largely due to a drop in
non-withheld individual income tax payments amid a worse performance
in stocks and other financial assets as interest rates rose.
Other revenue declines included a $106 billion drop in Federal
Reserve earnings as interest paid on bank reserves ate up any
portfolio income.
Fiscal 2023 outlays fell $137 billion, or 2% from the prior year to
$6.134 trillion. Outlays would have been more modest were it not for
large increases in spending on retirement and healthcare benefits
for the elderly and in debt service costs.
Social Security spending rose 10% to $1.416 trillion due to cost of
living adjustments for inflation, and spending for the Medicare
senior healthcare program rose 4% to $1.022 trillion.
Interest costs on the more than $33 trillion in federal debt also
rose sharply, up 23% to $879 billion, a record. Net interest
payments, excluding intragovernmental transfers to trust funds, rose
39% to $659 billion, also a record, according to a Treasury
official.
Gross interest payments amounted to 3.28% as a share of gross
domestic product, the highest since 2001, and the net share at 2.45%
was the highest since 1998, the official said.
Interest rates have soared over the last year and a half as the
Federal Reserve jacked up borrowing costs to slow inflation. The
average interest cost on the Treasury's outstanding debt was 2.97%
last fiscal year, up from 2.07% the year before.
(Reporting by David Lawder and Dan Burns; Editing by Andrea Ricci)
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