US budget deficit hits highest level in 6 years

Marco Green
October 16, 2018

Administration officials said the deficit, the highest since 2012, was up due to greater federal spending, including a larger military budget increases.

Economists generally view the corporate and individual tax cuts passed by the Republican-controlled U.S. Congress late past year and an increase in government spending agreed in early February as likely to balloon the nation's deficit.

But tax cuts without spending cuts are a recipe for disaster.

The federal deficit was $665 billion in 2017, according to the Congressional Budget Office.

As the GOP tax bill and massive spending agreement took hold, the deficit for fiscal year 2018, which ran from October 2017 through September 2018, was 17% wider than 2017's and totaled 3.9% of GDP. Predictions from Trump administration officials that the tax cuts could pay for themselves were predictions based on long-term economic growth, not meant to play out in the first year or two of the tax cuts.

President Donald Trump hails the tax cuts as a boon to the economy, but corporate tax receipts dropped sharply and America's growing debt burden to finance the deficit became increasingly costly, the Treasury Department said.

During the same period, government spending rose $127 billion to $4.108 trillion, the release explained. "The fact that our government is closing in on trillion-dollar deficits in the midst of an economic expansion should be a serious issue for voters and candidates", William Hoagland, its senior vice president, said of next month's USA congressional elections.

It is likely that if tax rates had remained at past levels, revenue would have grown by even more due to the strong performance of the economy in 2018. Although it is not clear by how much since the effect of the tax cuts in driving that growth is not known with any certainty.

Economists likewise say the aging population will strain the Social Security system, adding to pressure on the deficit over time.

The government did lay claim to a smaller share of the private sector's income in 2018. Trump frequently criticized his Democratic predecessor Barack Obama for running up the deficit, and in 2012 recommended banning lawmakers from reelection if Congress couldn't balance the budget.

The approximately 17 percent jump in the federal deficit came despite the strong growth in the overall US economy, an unusual instance in which the economy and the deficit are expanding at the same time. However, despite the strong economy, federal revenue only rose by $14 billion. These sales allow savers to exchange the shortest term government obligations, dollars, for longer term bonds.

Other reports by Click Lancashire

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