How the federal budget deficit doubled under Biden in a single year
Tiana Lowe Doescher
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The United States is increasingly losing the war against red ink.
Per new Treasury Department figures, the U.S. government is courting a worsening fiscal crisis. Officially, Treasury Secretary Janet Yellen said the federal government ran a $1.7 trillion deficit for fiscal 2023, which ended Sept. 30. That’s up from a $1.4 trillion federal budget deficit posted in 2022.
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But as highlighted by the Committee for a Responsible Federal Budget, Yellen’s math ignores another $300 billion in debt incurred by President Joe Biden’s student debt cancellations, bringing the actual total of the deficit under the president to a full $2 trillion. Fix that adjustment for fiscal 2022, and that year’s deficit amounted to a little less than $1 trillion.
This means that in just one year, sans recession and sans war, the federal government under Biden managed to double the deficit by more than $1 trillion. And in large part, it’s all thanks to his embrace of inflation, or at least inflationary spending.
Broadly speaking, the explosion of our national debt, which is now the size of the nation’s annual GDP, is primarily driven by our growth of government spending. While the rest of the nation pays handsomely for inflation with their paychecks, reduced in real terms of purchasing power, our wealthiest generation profits from the pockets of taxpayers. Thanks in large part to the cost-of-living adjustments for our entitlement programs, the three greatest categories of federal budget outlays — Social Security ($1.4 trillion), Medicare ($848 billion), and Medicaid ($616 billion) — grew by 11%, 12%, and 4%, respectively, from just last year.
To deal with this, the Federal Reserve has had to force some uncomfortable fiscal medicine down Americans’ throats. When big inflation hit under Biden, the nation’s central bank, after over a decade of the failed zero interest rate policy experiment, was forced to jack up the federal funds rate to north of 5%. That eventually helped bring down near double-digit inflation, the worst inflationary crisis of 40 years, to about 4%.
Yet considering that figure is still twice the central bank’s maximum target of 2%, the Fed’s work is far from done, and the White House’s hefty spending has only made it have to slam on the brakes even harder than it would have otherwise. As a result, the federal government had to pay $184 billion more on net interest on the debt than it did last year. Another $101 billion in increased outlays from Uncle Sam went to depositors at banks such as Silicon Valley Bank and First Republic, which foolishly failed to hedge against the obvious likelihood that interest rates could not indefinitely remain at zero.
Inflation, and the Fed’s attempt to rein it in, also killed federal revenue, which Bloomberg estimates was responsible for a majority of the deficit’s growth. Increased interest rates, which force the Fed to shell out more on interest on reserves and reverse repos, also resulted in $106 billion in remittances the Fed normally passes onto the Treasury as profit that it could not share this year.
And thanks to stock market uncertainty under both the Fed’s monetary tightening and the regulatory policy of the White House, income tax revenue also fell by 9.3%, due largely to much lower capital gains than the previous fiscal year.
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The stratospheric surge in bond yields should serve as a warning to Washington that even if the Fed won’t force the government to slow down the spending, the nation’s creditors will not continue to bankroll Uncle Sam without him paying a hefty premium for the privilege. While underlying demographic trends and the inherent, gerontocratic structure of entitlements predestined the nation to a certain fiscal fiasco long before the pandemic, the bipartisan embrace of wartime borrowing, and then Biden’s decision to double down on inflationary policy, have put the country on the path where not even the Fed can fight the deficit disaster on its own.
If Washington won’t listen to the Fed, perhaps it will begin to listen to creditors as the coffers continue to run dry.