It’s not totally unprecedented to see the federal budget deficit double from one year to the next, as it seems to have done this year.
But those occasions, at least in the past 50 years, have always corresponded with bad stuff happening to the national economy. Deficits surged in the late 1970s and early 1980s thanks to high inflation and a series of recessions. The budget deficit doubled between 2002 and 2003 thanks to a recession and as the War on Terror kicked off. And it skyrocketed again during the crises that bookended the 2010s: the mortgage crisis and the COVID-19 pandemic.
This year will likely be added to that list. The Congressional Budget Office last week projected that the federal government will post a deficit of $2 trillion when the current fiscal year ends on September 30.
At first blush, that might not appear to double last year’s budget deficit of about $1.4 trillion, but keep in mind that last year’s total included roughly $400 billion for President Joe Biden’s student loan forgiveness plan—funds that were never spent because the Supreme Court struck down the proposal, as the CBO notes.
Compared to those other historical examples, however, this year seems like an outlier. Unemployment is low, the economy has been growing steadily, and inflation has significantly abated. America does not seem to be in a crisis at the moment, but the government’s balance sheet certainly is.
And it is that way, in large part, because of the government’s own programs—as opposed to, say, an external event like a pandemic or a mortgage crisis. The drivers of this year’s rising deficit are four-fold, and three of them are the result of decades of poor policymaking: rising interest costs on the $33 trillion national debt, higher Social Security outlays, and more Medicare spending. As Axios points out, those three categories added more than $390 billion to the deficit relative to last year—a tremendous jump in a single year.
The fourth category is falling federal income tax revenue, which is responsible for about $171 billion of the added deficit this year versus last. That’s likely a blip and not a long-term problem—federal tax revenue was unexpectedly high a year ago, and bigger swings in annual revenue tallies seem to be becoming more common, as The Wall Street Journal explained in May.
That’s not the case for the other three categories driving this year’s deficit, all of which are going to keep getting worse for the foreseeable future.
Hellbound and Down 