Tracking The Federal Deficit: August 2020
The Congressional Budget Office estimates that the federal government ran a deficit of $198 billion in August, the eleventh month of fiscal year 2020. This deficitthe difference between $223 billion of revenues and $420 billion of outlaysis $3 billion less than last Augusts, although this apparent improvement is an illusion created by shifts in the timing of certain payments. Without these timing shifts, this Augusts deficit would have been $106 billion greater than last Augusts. The cumulative deficit in FY2020 has risen to $3.0 trillion, an increase of $1.9 trillion from this point last year.
Analysis of notable trends: Cumulative revenue for the fiscal year is down 1% from this point last year, while cumulative outlays are 46% higher. August repeated this asymmetry, with revenues 2% lower than last Augusts and outlaysnetting out the timing shifts described above27% higher.
Thanks to a strong economy, this years revenue through March had been running 6% above last years. Then COVID-19 hit, and revenues from April through August have come in 9% lower than last year, due to both the loss in economic activity and legislation responding to the pandemic.
CBO now projects that the total deficit this fiscal year will run to $3.3 trillion, more than triple last years and the largest deficit as a share of the economy since 1945.
Government Spending Gdp And The Budget Deficit
A budget deficit occurs when government spending exceeds revenue. The federal government’s revenue is the income it collects from taxes, fees, and investments. When spending is less than revenue, it creates a budget surplus.
The president and Congress overspend on purpose. They realize that the more the government spends, the more it stimulates the economy. Government spending is itself a component of GDP. It is the country’s total economic output for a year.
Achieving A Budget Surplus
Under pressure from Republicans in Congress, President Bill Clinton, a Democrat, agreed to consistently cut the deficit and eventually oversaw the first budget surplus in decades.
The surplus stood at $236 billion in 2000, Clinton’s final year in office. The $128 billion surplus recorded in 2001 was the last time a surplus has been seen in this century.
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Tracking The Federal Deficit: June 2019
The Congressional Budget Office reported that the federal government generated an $8 billiondeficit inJune, theninth monthof Fiscal Year 2019, for a total deficit of$746 billionso far this fiscal year. If not for timing shifts of certain payments, Junes deficit would have been $57 billion, which is $28 billion larger than the adjusted deficit forJune 2018. Total revenues so far inFiscal Year 2019increased by3 percent , while spending increased by7 percent , compared to the same period last year.
Analysis of Notable Trends this Fiscal Year to Date: Individual and payroll taxes together rose by 3 percent , reflecting an expanding economy and a low unemployment rate. Furthermore, customs duties increased by 77 percent versus last year, primarily due to the imposition of new tariffs. On the spending side, Social Security expenditures increased by 6 percent compared to last year due to increases in the number of beneficiaries and the average benefit payment. Finally, net interest payments on the federal debt continued to rise, increasing by 16 percent versus last year due to higher interest rates and a larger federal debt burden.
How The Budget Process Works
When discussing presidents and budget deficits, it’s essential to keep some things in mind. First, while a president proposes an annual budget, Congress must approve all spending. The president’s power over the budget is never absolute. It can be severely limited if the opposition party holds a majority in either the House of Representatives or the Senateâand especially if they hold the majority in both.
Another thing to know is that “discretionary” spending accounts for only about one-third of the typical U.S. budget. The majority is “mandatory” spending that is dictated by law. The most significant sources of mandatory spending are Medicare and Social Security.
In addition, the federal fiscal year runs from Oct. 1 to Sept. 30. This means that during a new president’s first year in office, the budget that is in place was passed during their predecessor’s term. However, incoming administrations can request additional spending upon taking office.
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Tracking The Federal Deficit: April 2022
The Congressional Budget Office estimates that the federal government ran a surplus of $308 billion in April 2022, the seventh month of fiscal year 2022. This surplus was the difference between $864 billion in receipts and $556 billion in spending. Aprils surplus compares to a $226 billion deficit in April 2021, with the dramatic change primarily due to the winding down of most pandemic relief spending and income tax receipts arriving in April 2022 that were delayed during the last fiscal year. In both 2021 and 2022, May 1 fell on a weekend, shifting some outlays into April that would normally have occurred in May. If not for those shifts, the April 2022 surplus would have been $373 billion and the April 2021 deficit would have been $166 billion. The following discussion excludes the effects of those timing shifts.
Analysis of notable trends: The federal government typically runs a surplus in April, the month when most taxpayers pay individual income taxes. However, due to high levels of pandemic relief spending and the IRSs decision to delay Tax Day in 2020 and 2021, April 2022 marked the first April surplus since 2019.
Biden’s Smaller Budget Deficit
One of Joe Biden’s campaign promises was to reduce the federal deficit, and there’s been progress on this account. The Congressional Budget Office estimated that the federal budget deficit was $475 billion in the first five months of fiscal year 2022, which represented an amount lower than those for the years 2021 and 2020.
“It is less than half the shortfall recorded for the same months of fiscal year 2021 and three-quarters of the deficit recorded in 2020 , just before the start of the coronavirus pandemic,” noted the CBO. The turnaround is due to more robust revenues and fewer expensesâfrom October 2021 through February 2022, revenues were $371 billion higher, and outlays were $201 billion lower than they were during the same period a year ago,” CBO estimates.
In Nov. 2022, the CBO reported that the budget deficit for FY 2022 was nearly $1.4 trillion, down from nearly $2.8 trillion in 2021.”The marked decline in the deficit from the previous year reflected waning spending in response to the coronavirus pandemic and increased revenues driven by higher inflation and the continued recovery of economic activity,” the CBO reported.
Still, the deficit was “$339 billion larger than the shortfall estimated in CBOâs most recent baseline budgetary projections, which were issued in May 2022.” The CBO attributed part of the rise in the estimated deficit to student debt forgiveness, which is currently on hold.
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Tracking The Federal Deficit: January 2022
The Congressional Budget Office estimates that the federal government ran a surplus of $119 billion in January 2022, the fourth month of fiscal year 2022. Januarys surplus was the first recorded since September 2019, and it was the difference between $467 billion in revenues and $348 billion in spending. In comparison, last January, the federal government ran a $163 billion deficit. Additionally, both this year and last year, the timing of the New Years Day federal holiday shifted some payments that would have normally been due at the beginning of January into December. In the absence of these timing shifts, the federal government would have run a smaller monthly surplus in January 2022 of $95 billion.
Analysis of notable trends: In the first four months of FY2022, the federal government ran a deficit of $259 billion, $477 billion less than at this point in FY2021. It is noteworthy, however, that the cumulative deficit for FY2022 thus far compares favorably to that of FY2020 , prior to the onset of COVID-19.
Notably, net interest on the public debt rose 22% to $140 billion for the fiscal year to date, primarily reflecting the impact of rising inflation on adjustments to the principal of inflation-protected securities.
Interest And Debt Service Costs
Despite rising debt levels, interest costs have remained at approximately 2008 levels because of lower than long-term interest rates paid on government debt in recent years. The federal debt at the end of the 2018/19 fiscal year was $22.7 trillion. The portion that is held by the public was $16.8 trillion. Neither figure includes approximately $2.5 trillion owed to the government. Interest on the debt was $404 billion.
The cost of servicing the U.S. national debt can be measured in various ways. The CBO analyzes net interest as a percentage of GDP, with a higher percentage indicating a higher interest payment burden. During 2015, this was 1.3% GDP, close to the record low 1.2% of the 19661968 era. The average from 1966 to 2015 was 2.0% of GDP. However, the CBO estimated in 2016 that the interest amounts and % GDP will increase significantly over the following decade as both interest rates and debt levels rise: “Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO’s baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3% of GDP, to $799 billion in 2024, or 3.0% of GDPthe highest ratio since 1996.”
According to a study by the Committee for a Responsible Federal Budget , the U.S. government will spend more on servicing their debts than they do for their national defense budget by 2024.
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National Debt Of The United States
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The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury securities that have been issued by the Treasury and other federal agencies. The terms “national deficit” and “national surplus” usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. In a deficit year the national debt increases as the government needs to borrow funds to finance the deficit, while in a surplus year the debt decreases as more money is received than spent, enabling the government to reduce the debt by buying back some Treasury securities. In general, government debt increases as a result of government spending and decreases from tax or other receipts, both of which fluctuate during the course of a fiscal year. There are two components of gross national debt:
During the COVID-19 pandemic, the federal government spent trillions in virus aid and economic relief. The CBO estimated that the budget deficit for fiscal year 2020 would increase to $3.3 trillion or 16% GDP, more than triple that of 2019 and the largest as % GDP since 1945.
Tracking The Federal Deficit: May 2021
The Congressional Budget Office estimates that the federal government ran a deficit of $132 billion in May, the eighth month of fiscal year 2021. Mays deficit was the difference between $463 billion of revenue and $596 billion of spending. To note, May spending was impacted by May 1 falling on a weekend, shifting certain payments into April that are normally paid at the beginning of May. If not for these timing shifts, the May deficit would have been $192 billion.
So far this fiscal year, the federal government has run a cumulative deficit of $2.1 trillion, the difference between $2.6 trillion of revenue and $4.7 trillion of spending. This deficit is 10% greater than at the same point in FY2020when only three months of pandemic-related spending had occurredand 179% greater than at this point in FY2019.
Analysis of notable trends: The pandemic response continues to disrupt normal spending and revenue patterns. Individual income taxes are usually paid in April however, in both 2020 and 2021, the federal government pushed back Tax Day due to COVID-19. This year, individual income taxes were due on May 17, compared to July 15 in 2020. Additionally, this year, estimated quarterly tax payments were due in April, whereas they were due in July in 2020. These shifting dates must be taken into account when considering year-over-year deficit comparisons.
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Iii Comparing Deficits Under Recent Presidents
The prevailing perception has long been that Democrats prefer big government spending on services and increased taxes, while Republicans favor small government with less spending and lower taxes.David Siders, Why Democrats Stopped Stressing Over Big Spending, politico.com, May 10, 2021, Jeffrey M. Jones, Americans Revert to Favoring Reduced Government Role, news.gallup.com, October 14, 2021 Much has been written, discussed, and argued on the subject of which modern presidents were the most profligate spenders and which have been the most budget conscious.
That is a difficult if not impossible question to answer because of the various factors that might impact spending at any given time. There may be important and unexpected events outside a presidents control that could substantially affect a presidential budget. Such events could include a global economy dislocation, a pandemic, having one or both houses of Congress in the opposing political partys hands, the previous actions of a prior administration, or being a lame duck president who signs or approves a budget for reasons other than agreement with it.
Presidents are sworn into office on January 20 of the year following a presidential election. During the 8.3 months between inauguration on January 20 and the first new presidents first budget going into effect on October 1, a president is operating under the budget approved by his or her predecessor.
A. Federal Deficit by Presidential Administration
Why The Deficit Is Less Than The Increase In The Debt
There’s an important difference between the deficit and debt. The deficit has been less than the increase in debt for years because Congress borrows from the Social Security Trust Fund surplus. The surplus emerged back in the 1980s when there were more people working than there were retirees. As such, payroll tax contributions were greater than Social Security spending, allowing the fund to invest the extra revenue in special Treasury bonds. Congress spent some of the surplus so it wouldn’t have to issue as many new Treasury bonds.
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Budget Deficit By Year Since 1929
The deficit since 1929 is compared to the increase in the debt, nominal GDP, and national events in the table below.
The national debt and GDP are given as of the end of the third quarter of each year unless otherwise notedspecifically, September 30. The date coincides with the budget deficit’s fiscal year-end. GDP for years up to 1947 isn’t available for the third quarter, so annual figures are used.
The first column represents the fiscal year, followed by the deficit for that year in billions. The next column is how much the debt increased for that fiscal year, also in billions. The third column calculates the deficit-to-GDP ratio. It indicates that there was a surplus if numbers are in parentheses. The fourth column describes events that affected the deficit and debt.
GDP is as of June 30, 2021, for 2021. The national debt increase is from October 1, 2020, to June 30, 2021. The estimated fiscal year budget deficit is from the CBO and was released on July 1, 2021.
Raising Reserve Requirements And Full Reserve Banking
Two economists, Jaromir Benes and Michael Kumhof, working for the International Monetary Fund, published a working paper called The Chicago Plan Revisited suggesting that the debt could be eliminated by raising bank reserve requirements and converting from fractional-reserve banking to full-reserve banking. Economists at the Paris School of Economics have commented on the plan, stating that it is already the status quo for coinage currency, and a Norges Bank economist has examined the proposal in the context of considering the finance industry as part of the real economy. A Centre for Economic Policy Research paper agrees with the conclusion that “no real liability is created by new fiat money creation and therefore public debt does not rise as a result.”
The debt ceiling is a legislative mechanism to limit the amount of national debt that can be issued by the Treasury. In effect, it restrains the Treasury from paying for expenditures after the limit has been reached, even if the expenditures have already been approved and have been appropriated. If this situation were to occur, it is unclear whether Treasury would be able to prioritize payments on debt to avoid a default on its debt obligations, but it would have to default on some of its non-debt obligations.
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Tracking The Federal Deficit: April 2019
The Congressional Budget Office reported that the federal government generated a $161 billion surplus in April, the seventh month of Fiscal Year 2019, for a total deficit of $531 billion so far this fiscal year. Aprils surplus is 33 percent less than the surplus recorded a year earlier in April 2018. If not for timing shifts of certain payments, the surplus would have been 5 percent smaller than the surplus in April 2018. Total revenues so far in Fiscal Year 2019 increased by 2 percent , while spending increased by 6 percent , compared to the same period last year.
Analysis of Notable Trends this Fiscal Year to Date: Income tax refunds were down by 5 percent compared to last tax season, contrary to many analysts expectations. Further, outlays from the refundable earned income and child tax credits increased by 12 percent versus last year, reflecting expansions enacted in the Tax Cuts and Jobs Act of 2017. Net interest payments on the public debt continued to rise, up 13 percent compared to last year, largely as a result of higher interest rates and the nations steadily growing debt burden.