US budget deficit hits six-year high of US$779 billion under Donald Trump
Report comes just weeks before midterm elections and threatens to undermine a long-standing Republican argument that they are better stewards of America’s finances
The US budget deficit has surged to US$779 billion in the most recent financial year – its highest level in six years as President Donald Trump’s tax cuts caused the government to borrow more heavily to cover its spending.
The US Treasury Department said Monday that the deficit climbed US$113 billion from fiscal 2017. Debt would likely worsen in the coming years with the Trump administration expecting the deficit to top US$1 trillion in 2019, nearly matching the US$1.1 trillion imbalance from 2012.
The deficit worsened because tax revenues are not keeping pace with government spending.
The government’s financial year runs from October to September, unlike calendar years that begin in January. Tax revenues were essentially flat in fiscal 2018, while spending increased 3.2 per cent as Congress gave more funds for military and domestic programmes.
Revenues generally tumbled after December when Trump signed into law US$1.5 trillion of tax cuts over the next decade.
The tax cuts have caused economic growth to accelerate this year with Federal Reserve officials anticipating gains of 3.1 per cent.
But the Trump administration initially promised that the tax cuts would pay for themselves through stronger growth – and there was no sign so far of that happening.
“The budget numbers make very clear that the faster growth isn’t stopping the deficit from increasing,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a group that advocates for lower deficits.
Treasury Secretary Steve Mnuchin suggested in a statement that the underlying source of the widening deficit was growth in government spending, rather than the tax cuts.
“Going forward the president’s economic policies that have stimulated strong economic growth, combined with proposals to cut wasteful spending, will lead America toward a sustainable financial path,” Mnuchin said.
The report also comes just weeks before midterm elections in Congress and threatens to undermine a long-standing Republican argument that they are better stewards of the nation’s finances.
In response to the Treasury’s statement, Democrat Senator Bernie Sanders blamed Republicans for the deficit.
Sanders’ office produced an analysis arguing America would be running a surplus without the tax cuts passed under Trump and George W. Bush, higher military spending after September 11, and the costs of the wars in Iraq and Afghanistan.
“Without Republicans’ tax cuts, war-fighting, and defence build-up since 2001, the federal budget would have been US$156 billion in surplus,” Sanders said.
The only other period when the federal government has run deficits above US$1 trillion was for four years from 2009 through 2011.
That’s when the Obama administration was using tax cuts and increased spending, along with support for the banking system, to combat the 2008 financial crisis and Great Recession, the worst economic downturn since the Great Depression of the 1930s.
Trump frequently criticised Obama for running up the deficit, and in 2012 recommended banning lawmakers from re-election if Congress couldn’t balance the budget.
Additional reporting by The Washington Post and Bloomberg