Last week, the Treasury Department released its latest numbers on the national deficit showing that it had grown to more than $984 billion for the 2019 fiscal year, which ended on Sept. 30. That’s a 26 percent increase over 2018.
It wasn’t supposed to be this way. When Republican members of Congress passed a tax cut bill in late 2017, they pledged that those tax cuts would pay for themselves by increasing economic output.
That hasn’t happened, and the federal government faces a growing sea of red ink, with the annual deficit expected to top $1 trillion in the current fiscal year.
The deficit is the difference between what the federal government spends and what it takes in, mostly in the form of taxes. The national debt is essentially an accumulation of yearly deficits, which represents the money the federal government borrows each year to close the gap between spending and the revenues it collects. Both are growing rapidly.
Both government spending and tax cuts are contributing to the problem. When taxes are reduced and they aren’t paid for with increased economic activity that adds to the federal coffers or corresponding spending cuts, deficits increase.
Although federal revenues from tax collections have grown, they were lower in fiscal years 2018 and 2019 than the Congressional Budget Office predicted when it analyzed the impacts of the Republican-backed tax cut package. The largest gaps were in individual and corporate tax receipts, the CBO said earlier this week. The CBO previously predicted that the 2017 tax cuts would add nearly $2 trillion to the deficit by 2028. The office did not change is deficit predictions but said it would continue to monitor tax collections.
“If tax cuts are not paid for, it is a tax increase on future generations,” Sen. Angus King, who has long lamented the growing national debt, said in a recent interview with the BDN.
Federal spending, as a percent of America’s GDP, has averaged about 19 percent over the last 60 years, according to data from the Federal Reserve. That’s about where it is today.
Federal revenue, however, has dropped. In 2000, federal receipts were nearly 20 percent of GDP, actually exceeding federal spending. After Congress passed tax cut packages backed by then-President George W. Bush in 2001 and 2003, federal revenue collections dropped to 15.4 percent of GDP in 2004. They rebounded before falling during the recession and then climbed to nearly 18 percent of GDP in 2015. Federal revenues fell again after the 2017 tax cuts and were only 16 percent of GDP in 2018.
Numbers from the CBO and Joint Committee on Taxation shows that without the 2017 tax cuts, the federal deficit would be nearly zero.
This is not to say that federal spending doesn’t need close scrutiny and adjustments. U.S. defense spending, as a percentage of GDP, is less than half of what it was 60 years ago. Likewise, discretionary spending — that part of the government that isn’t mandatory and is funded by congressional appropriations — has also declined. Entitlement spending, namely Social Security and Medicare, has grown and is predicted to continue to rise as Baby Boomers reach retirement age.
As a candidate, President Donald Trump pledged to eliminate the federal debt within eight years. Instead, his administration, and a Congress that was controlled by Republicans until this year, have substantially increased it.
Again, the math is fairly simple: when spending exceeds revenue, the deficit grows. The hard part is making the difficult decisions — raising taxes, reducing long-term entitlement spending — that few politicians wants to face.
As BDN columnist Mattew Gagnon wrote this week: “Someone has to be an adult. Someone has to step up and say, ‘we can’t keep spending money like this,’ and try to do something to fix it.”
Those adults, unfortunately, are in short supply in Washington.