In 2011, the GOP-controlled House of Representatives pushed to pass a constitutional amendment that would require balanced budgets. And the Obama administration created a deficit commission looking for ways to slow the growth of government debt. But those efforts have fallen away, and budget experts believe the country will see trillion-dollar annual deficits far into the future.
The gap between spending and revenue, referred to as the deficit, grew to $984 billion in the fiscal year that ended Sept. 30, the highest dollar amount since 2012. The government spent $4.4 trillion on numerous programs and services and brought in $3.5 trillion through taxes and other revenue.
Trump administration officials did not defend the marked deficit increase, but they cast blame on Congress for not doing more to reduce expenditures. Treasury Secretary Steven Mnuchin called on lawmakers “to cut wasteful and irresponsible spending.” But neither Trump nor Congress has done much to cut spending in recent years, with Trump repeatedly backing away from his own budget proposals. Trump has also demanded new spending on the military and for a border wall. He has recently told aides that he will focus on cutting spending if he is elected to a second term next year.
It is unusual for the government to run such a large budget deficit during a period of economic growth, because spending on unemployment and other benefits tends to contract and tax revenue often grows. But the White House and Congress have contributed to the deficit’s surge by enacting large spending increases and passing the 2017 tax cut law. The budget deficit was $665 billion in 2017.
U.S. debt is considered one of the safest investments in the world and interest rates remain low, which is why the government has been able to borrow money at cheap rates to finance the large annual deficits. But the costs are adding up. The government spent about $380 billion in interest payments on its debt last year, almost as much as the entire federal government contribution to Medicaid.
Budget experts have also warned that a lack of focus on the deficit could make it much harder for the U.S. government to respond to the next economic crisis, because policymakers will have less flexibility to enact new spending programs if they are devoting hundreds of billions of dollars to interest payments on the debt.
“This is the first time in our history that we are seeing a boom in the economy at the same time deficits are rapidly rising. It’s alarming,” said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, which supports reducing the deficit.
The Obama administration and Republicans in Congress enacted measures to reduce the deficit starting in 2011, and those measures — and a growing economy — led the deficit to fall by almost 50 percent. But those gains have been lost by a recent apathy among policymakers about addressing the fiscal imbalance.
“There is very little discussion among Republicans about the deficit and virtually no serious outreach to Democrats for any sort of bipartisan deal,” said Brian Riedl, a budget expert at the Manhattan Institute, a libertarian-leaning think tank, and former chief economist for Sen. Rob Portman (R-Ohio). “The parties are not talking on this issue.”
The government recorded four straight years of budget deficits that exceeded $1 trillion around the time of the Great Recession, with the worst overrun occurring in 2009 when the deficit reached nearly 10 percent of the U.S. economy, the highest level since World War II. A growing economy and steps taken by the Obama administration and Congress shrank the deficit to 2.4 percent of the economy in 2015, but it slowly began expanding again, largely because of spending increases. In 2019, the deficit was 4.6 percent of the economy.
Budget experts also say the tax cut has led revenue to come in lower than they normally would during an economic expansion. The legislation is projected to increase the annual deficit by about $200 billion, or close to $2 trillion over 10 years when factoring in interest payments, according to the nonpartisan Congressional Budget Office.
Tax revenue remained roughly flat the first year the law was in effect, despite economic growth of nearly 3 percent. Tax revenue was modestly higher in fiscal 2019, aided in part by a 70 percent increase in tariff revenue. White House officials said the GOP tax cuts would create so much new income tax revenue that it would offset any money lost from lower rates, but there are signs the economy is beginning to slow markedly now.
Overall spending is projected to rise by about 16 percent between 2017 and 2020, largely because of bipartisan deals struck by Congress, including a 2018 law that lifted spending limits and disaster relief funding, according to the Committee for a Responsible Federal Budget.
Military spending has risen dramatically under Trump, from about $550 billion annually to more than $700 billion in 2019, and Democrats successfully pushed for increases to other parts of the budget in exchange for their support to boost money for defense.
The leading Democratic presidential candidates are running on plans for enormous new spending programs that would likely add to the deficit, though some have said they will offset the costs with tax increases. Meanwhile, Republicans have demonstrated little appetite for raising tax revenue after dramatically slashing them in 2017.
America’s fiscal outlook could deteriorate even further should interest rates rise. The Federal Reserve has kept interest rates relatively low during this recovery, reducing the cost of borrowing and easing concerns that the deficit could trigger runaway inflation.
America’s expanding federal deficit is an anomaly among developed nations around the world. Nearly all other advanced-economy countries are on track to see their debt shrink as a share of their economy over the next five years, according to the International Monetary Fund.
Some economists, particularly on the left, warn against expressing alarm over the widening deficit, arguing that because inflation remains low there is little reason to fear higher deficits.
In January, former Obama administration economists Jason Furman and Lawrence Summers penned an op-ed calling for Washington to “end its debt obsession,” casting doubt on the nightmarish predictions of some deficit hawks.
“If the deficit is helping to support demand, and that support is keeping us moving forward, then I see no reason to complain about the fact that the deficit has increased,” said Stephanie Kelton, an economist at Stony Brook University who has served as an adviser to Sen. Bernie Sanders (I-Vt.).
Republican policymakers have made little noise about the deficit under Trump, a contrast with their dire predictions about rising red ink under President Obama.
In 2013, when federal debt totaled $16.7 trillion, Trump tweeted: “Obama is the most profligate deficit & debt spender in our nation’s history.” The federal government is now more than $22 trillion in debt, according to the White House.
Vice President Pence called the debt increases under the Obama administration “atrocious.” Mick Mulvaney, the president’s acting chief of staff, held “Spending, Debt and Deficit” town halls during the Obama administration and repeatedly criticized lawmakers of both parties for increasing the deficit, including through funding relief for Hurricane Sandy.