Budget Deficit Sets Another Record Under Trump, Heads Toward $1 Trillion

The Federal Budget Deficit rose 27% in July, putting it on course for the $1 trillion by the end of September.

New figures from the Treasury Department show that the U.S. budget deficit rose 27% during the month of July alone, putting us on course for a return to the era of trillion-dollar budget deficits:

The US budget deficit widened to $867 billion for the first 10 months of the fiscal year, an increase of 27% over this time last year, the Treasury Department reported Monday.

The current shortfall exceeds the full-year deficit for fiscal 2018, which was $779 billion.

President Donald Trump, who promised during the 2016 campaign to eliminate the federal debt, has instead overseen a dramatic increase in deficits.

The White House’s Office of Management and Budget has predicted that the deficit will exceed $1 trillion for the entire fiscal year, which ends on September 30. The nonpartisan Congressional Budget Office in May had predicted a slightly smaller shortfall of $896 billion for the year, with deficits rising above $1 trillion starting in 2022.

The last time the gap was that big was in 2012, in the aftermath of the financial crisis.

There are a number of factors driving the US deficit increase, including the $1.5 trillion tax cuts signed into law by Trump in 2017 along with a massive spending package passed by Congress.Tax revenue rose 3% to $2.86 trillion since the start of the fiscal year on October 1, but hasn’t kept up with increased federal spending, which increased 8%.

Earlier this month, Trump signed into law a bipartisan two-year budget deal that will raise spending by an additional $320 billion over the next two years and suspended the debt ceiling through mid-2021.

The graphic at the top of this post demonstrates the course that the budget deficit has taken under President’s Obama and Trump, as does this chart from Yahoo Finance, which shows the annual deficit dating back to 2001:

The worst years for the budget deficit came during the first term of the Obama Administration, but rather than being linked to massive increases in spending, they were due largely to revenue shortfalls resulting from the Great Recession and the impact it had on the economy. Although it should be noted that at least part of the increase can be attributed to the economic stimulus package adopted in the first year of former President Obama’s first term. As the chart shows, the deficit slowly began to decrease after 2010, thanks both to the recovery from the economic downturn that began in 2009 and the budgetary controls that were put in place after Republicans took control of the House of Representatives in the 2010 election. Those controls were so successful that, by 2015 the budget deficit was near where it had been during the middle of George W. Bush’s time in office. Now, we’re headed back to the era of trillion-dollar deficits.

This time, the record-setting deficits that we are likely to see for the foreseeable future are coming at a time when the economy continues to boom during what has become one of the longest economic recoveries in history, and that they come at a time when financial markets are becoming increasingly sensitive to higher levels of debt and interest rates. When the final budget deal was put forward in mid-February of last year, it included massive spending increases in almost every budget category and busted through the controls that had been put in place by the Budget Control Act of 2011, a controversial bill passed during one of the many fiscal showdowns between former President Obama and Congress that occurred after Republicans captured the House in 2010. As The New York Times noted at the time, this effectively means that Republicans have learned to love the deficits and debt they once claimed to abhor. This is the same Republican Party, which had spent the Obama years railing about spending and deficits. In the Trump Era. that same party has become the party of deficits and debt. By April of last year, the Congressional Budget Office had officially forecast that we’d be seeing trillion dollars deficits by the end of Fiscal Year 2019 and just a few months later, the national debt crossed a new benchmark and was north of $21 trillion

The word hypocrisy comes to mind here This, after all, the same Republican Party that has preached the gospel of fiscal responsibility for years, the truth is that it’s entirely consistent with how the GOP has acted so many times in the past that it’s easy to lose count. For the most part, the supposed Republican fidelity to fiscal responsibility and their concern about rising Federal Budget Deficits and the National Debt is something that has proven to be little more than a political slogan that was largely based on who controlled the White House. When former Presidents Bill Clinton and Barack Obama were in power, for example, Republicans argued that out of control spending and deficits were destined to drive up interest rates, cause the national debt to explode, and increase interest rates. They used these issues as political cudgels against the Democratic White House during both Administrations and, of course, as a way to appeal to voters and supporters. Riding this wave, the GOP was able to take control of both Congress and, eventually, the White House, but then things suddenly changed.

During the Administration of George W. Bush, for example, Republicans managed to preside over massive increases in spending that were quite plainly fiscally irresponsible. On the domestic side of the equation, they introduced a massive new trillion-dollar entitlement in the form of Medicare Part D without finding a way to pay for it. Similarly, they introduced education policy legislation such as the No Child Left Behind program that led to increases in Federal spending, again without any provisions about how it was going to be paid for in the future. Under President Bush’s leadership, they authorized and fought two wars, only of which was actually justified and necessary, that imposed serious financial burdens on the Federal Government both while the war was being fought and well into the future. On top of all that, they cut taxes. While that is not a bad thing in and of itself, and I’m certainly not going to argue against the lower tax burden that I and most other Americans had during the Bush years, from the perspective of fiscal responsibility it’s an utterly insane strategy. 

This was especially true with respect to the Iraq and Afghanistan Wars. In the past, we had traditionally found ways to finance wars via what usually ended up being a combination of higher taxes and short-term debt in the form of war bonds and other means of financing. No such effort was made to do this during the Bush years even though it’s likely that the White House could have made a convincing political argument that we needed to find a way to pay for the war that was necessitated by the September 11th attacks. Instead, President Bush chose to basically let the political capital he had gained in the wake of the attacks go to waste and the Republican Party in Congress took the position of Alfred E. Neuman and adopted a “What, me worry?” when it came to fiscal responsibility. When Republicans regaining control of the White House in 2016, all those proclivities returned.

FILED UNDER: Congress, Deficit and Debt, Donald Trump, Economics and Business, Politicians, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Kathy says:

    Doubleplusgood!

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  2. Kathy says:

    In the past, we had traditionally found ways to finance wars via what usually ended up being a combination of higher taxes and short-term debt in the form of war bonds and other means of financing.

    While that would have made the most sense after 9/11, especially if we include the airline bailouts, it would have been a hard thing for a politician to do in the aftermath of the tech bubble bursting. For a Republican, it would have been impossible.

    I wonder if Bush the younger even ever considered such measures.

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  3. Hal_10000 says:

    The problem that we’re facing is partially a spending problem but it’s mostly a revenue problem. The feds are spending about 20% of GDP, a bit higher than the 18% historic average, but understandable given the wave of retirees. They are collecting only 15% in taxes. It’s not just “tax cuts for the rich” either. Masses of people are basically paying almost no income taxes. Our tax system is way more progressive than European welfare states where the middle class and upper middle class pay way more taxes (e.g., the UK’s 40% rax rate kicks in at 50,000 pounds and their 45% rate at 150,000)

    The ugly truth is that taxes are going to have to go up. A lot. And on the middle class too. And that’s just to pay for what we’re doing right now. We should cut spending (I’d start with military spending). But there’s no way to finance this mess without a big across-the-board tax hike.

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  4. Daryl and his brother Darryl says:

    @Hal_10000:

    The feds are spending about 20% of GDP, a bit higher than the 18% historic average, but understandable given the wave of retirees.

    No doubt Baby Boomers are dinging us. Which illustrates how nonsensical immigration crack-downs are. US birth rates are down…so we are keeping actual workers out?
    Also…the debt service is one of the fastest growing portions, and will get worse as Republicans continue to blow up the deficit.
    Also increases in military spending.

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  5. DrDaveT says:

    @Hal_10000:

    The ugly truth is that taxes are going to have to go up. A lot. And on the middle class too.

    A transaction fee and nominal sales tax on equity market transactions would make up a huge part of the deficit, perhaps even all of it, and simultaneously eliminate some pernicious positive feedbacks in the market. Don’t expect to see it any time soon.

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  6. Gustopher says:

    @Hal_10000:

    The feds are spending about 20% of GDP, a bit higher than the 18% historic average, but understandable given the wave of retirees.

    But there’s no way to finance this mess without a big across-the-board tax hike.

    Soylent Greenbacks — reduces the number of retirees AND injects money into the economy.

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  7. Mister Bluster says:

    Trump delays tariffs on Chinese cellphones, laptops, toys;
    “We’re doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers,” Trump told reporters in New Jersey. “Just in case they might have an impact on people, what we’ve done is we’ve delayed it so that they won’t be relevant to the Christmas shopping season.”
    Reuters

    This can’t be the same President Pud that has been saying that China is paying all the tarrifs. Not United States consumers.

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  8. An Interested Party says:

    A transaction fee and nominal sales tax on equity market transactions would make up a huge part of the deficit, perhaps even all of it, and simultaneously eliminate some pernicious positive feedbacks in the market.

    What!? You mean taxing mostly wealthier people and corporations will actually take care of the deficit!? Who knew…

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  9. Kari Q says:

    @Hal_10000:

    I have wondered if U.S. treasuries are still regarded as safe investments because taxes are so low that no one can imagine we’d default rather than raise them.

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  10. Matt says:

    @Hal_10000: Bring the real top end back to +70% and the masses would be much more inclined to pay income taxes. I have to specify income taxes because the masses pay a whole lot of taxes outside of income. Provide those masses with services like those in the “European welfare states” and you’ll see a much more willingness to pay income taxes. As stands now any tax increase on the middle and lower class would see further cuts on the top….

    Like Warren Buffet said “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

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  11. Blue Galangal says:

    @Mister Bluster: Tangent: are his disjointed speech patterns getting worse? Some of the transcripts and quotes I’ve seen in the past two weeks seem like he’s just stringing words together. He can sort of stay on topic but he’s repeating phrases sometimes only peripherally related. It’s so weird. And apparently today he thought it was 11 am and it was 2:40 pm?

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  12. de stijl says:

    It could be general inchorence, but Vox or Axios had a piece last week that made a compelling case that Trump is functionally blind but does not wear glasses because of vanity.

    If what you we’re referring to was a teleprompter speech rather than off the cuff remarks that may have some bearing.

    If it was extemporaneous, than help us all.

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  13. Daryl and his brother Darryl says:

    In addition to an irresponsibly reckless increase of the deficit during a non-recession period…
    Today the 10yr bond yield dropped below the 2yr bond yield…historically a very accurate predictor of recession. This inversion has preceded every recession in modern history…although not always immediately preceding it. E.g., it inverted in December of ’05, before the Bush Contraction of ’07.
    Also, 3 of 5 indicators which closely track the business cycle are now at levels consistent with recession; auto sale, industrial production, an aggregate hours worked.
    As someone said; greatest economy ever!!!

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  14. Daryl and his brother Darryl says:

    @Daryl and his brother Darryl:
    Also:
    The German economy actually shrank in Q2, and Chinese Industrial production grew at the weakest rate in 17 years.
    There is a lot of stuff bubbling right now, and our President in an economic know-nothing and he is surrounded by fools.
    Will anything happen in the next 15 months? Who knows? If it does, I know this gang isn’t equipped to do anything more than tweet about it.

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  15. Tyrell says:

    @Hal_10000: “Read my lips: no new taxes” (George H. Bush). That went over like a lead balloon. Any candidate or politicians that even think of raising taxes on the middle class working people out here had better run for cover.
    Here is an idea: form a committee (no politicians) of business owners, economists, and some other fields to study the federal government. I mean every agency, department, office, and broom closet. Make recommendations on cutting, eliminating, and saving. Many agencies have outdated technology*. And they need to take a look at all the foreign aid.
    There are probably agencies tucked away up there that even Congress does not know about: “Tricycle Safety Authority”
    There is a lot of waste that could be eliminated. Congress and the president must agree on their recommendations. And no more of these bills that have pork barrel riders attached to them that fund things like tunnels for turtles, video game studies, and airports that sit unused.
    *Those Radio Shack computers and Windows 98 just don’t cut it anymore.

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  16. An Interested Party says:

    @Daryl and his brother Darryl: If a recession combined with the obvious repulsiveness of the trash in the White House don’t cause him to lose next year, than this country doesn’t really deserve to exist any longer…

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  17. Hal_10000 says:

    @Matt:

    No one actually paid that rate because of tax shelters. And no country in the world has a marginal tax rate that high because it would be insane. The highest tax rate in developed world is 57% in Sweden. But that’s a combined local and national rate, so the comparison would be the top US state and federal rate which is … 50%. I know it goes against everything Democrats want to believe, but our problem isn’t that we’re not taxing the rich enough.

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  18. Matt says:

    @Hal_10000: WOOOOSH Totally missed the point.

    Tax shelters and other methods of hiding income from taxes still exist so that 50% total of yours is mythical. Now in Sweden that 57% means damned near 57%…

    I know it goes against everything Democrats want to believe, but our problem isn’t that we’re not taxing the rich enough.

    Yeah because letting 1% of the population own over half of all stocks bonds and mutual funds is just dandy. Can’t see how letting a tiny fraction of the population have the majority of the wealth could cause any problems…. Warren Buffet would call you a “useful idiot”..

    Proper taxation would easily cover our current spending levels WHILE paying off the debt. That won’t happen because the rich have lots of money to throw around to make sure it doesn’t. The rich are winning and people like you are helping them..

    EDIT : Hell I’d like to see a fee to put high frequency trading out of business. We’ve already had a few too many close calls with those things….

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