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Issues & Insights

Why Did the Deficit Just Top $1 Trillion? Here’s Another Clue For You All

I&I Editorial

The Congressional Budget Office reported on Tuesday that, with one month to go, the federal deficit for fiscal year 2019 has already topped $1 trillion. As night follows day, Trump administration critics blamed the tax cuts.

And once again, the data prove them wrong.

The CBO report says that the federal deficit reached $1.067 by the end of August. That’s up $168 billion from the comparable period in fiscal year 2018. The deficit this year will be larger than the entire budget was in 1987.

Where did the increase come from? Why, tax cuts, of course.

But the report shows that revenues climbed 3.4% so far this fiscal year. Spending, however, shot up by 6.4%.

Look within the data, in fact, and you see that the tax cuts are working as promised – by accelerating economic growth, they’re at least partially paying for themselves.

Take corporate taxes. Ask any Democrat running for president and they will bemoan the tax “giveaways” to giant corporations. What they won’t tell you is that corporate tax revenues are up 5%.

In fact, corporations paid $8 billion more in the 11 months of this fiscal year than they did in the same period of fiscal year 2018. That increase alone is enough to fully fund the Environmental Protection Agency for an entire year.

What’s more, the CBO notes that corporate income tax payments through May were on 2018 activities. When you compare corporate taxes from June through August to same months last year, they are already up $18 billion – a 48% increase!

Meanwhile, individual income and payroll taxes are up $82 billion – a 3% increase over the prior year. Payroll taxes alone, which are a good indication of how well the job market is because they are automatically deducted from every worker’s wages, are up 6.4%.

Now look at the spending side of the equation.

The CBO report shows that while revenues have climbed by $102 billion, spending shot up by $271 billion.

The entire increase in the deficit over last year is due to rampant spending increases, not the Trump tax cuts.

Spending increases were across the board.

Social Security costs climbed 5.7%; Medicare, 6.5%; Medicaid, 4.6%.

Defense spending is up 7.9%, but spending on everything else in the budget has climbed by 4.5%.

Here’s the really worrisome figure: Interest payments on the national debt is up 14% over the prior year.

It should go without saying that these levels of spending growth are unsustainable. Yet instead of confronting them, lawmakers and the Trump administration are aggravating them. Entitlement reform is a non-issue at the moment. Every increase in defense spending has to be matched with a hike in spending on domestic programs. The national debt continues to explode.

And while Republicans appear indifferent to the debt explosion, Democrats are eager to more than double the size of the federal government, without saying how they’d pay for that increase let alone bring existing annual deficits down to earth.

To paraphrase Herbert Stein, something that can’t go on forever, won’t. The only question is when it won’t.

— Written by John Merline

CORRECTION: This editorial has been updated to remove a mistake. The original version compared nominal increases in federal revenues with the inflation-adjusted increase in GDP. Nominal quarter-over-quarter GDP growth for Q2 2018 was 4%. We regret the error, and thank an observant reader for catching the mistake.

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29 comments

  • Excellent piece. I would love to see these facts discussed in tonight’s Democratic debate.

      • They wont because, as with almost all politicians, they are mathematically illiterate. As the article alluded to, the servicing of the debt (as it grows), is an EXPONENTIAL curve!! Once that curve is rounded you will never catch it, we might as well change our name to Greece!

      • Graphs are fine for a quick snapshot, but the actual data from original source is more accurate. Revenue by the years you listed from the CBO: 2016 – $3.25 T; 2017 -$3.26 T 2018 – 3.329 T. And from the CBO report Merline cites here, receipts are currently at $3.087 T for the 1st 11 months of this FY, which is $102 B higher than for the same period last FY.

        By year’s end, receipts for 2019 will be higher than FY 2018, let alone 2017 and 2016.

        The tax bill caused a drop in revenue in 2008? You sure that wasn’t the economy? Revenue increased each year after the 2003 tax bill until the economy went South in 2008…after decreasing in 2001, 2002 and 2003!

    • Too boring. They’ll talk about Sharpiegate, racism, Trump, Trump, Trump and then, for added measure, Trump. ,

  • Interesting facts, but the assertion that this kind of deficit growth is not sustainable has been made forever, and so far it continues to sustain. Unless and until the proposition “continued growing deficit spending is sustainable” has been falsified, it will continue to be accepted as true, regular clarion calls to the contrary notwithstanding.

    • You might want to recheck your sources. The national debt at the end of fiscal year 1989 was $2.867 T – this year’s deficit isn’t anywhere close to that figure.

  • What a despicable and dishonorable liar. he gets that tax revenues are growing faster than GDP by comparing nominal taxes to real gdp, i.e he subtracts inflation from the gdp numbers but not the tax numbers. In reality, taxes are grew at a much slower rate than gdp. He makes a great deal about how much higher corporate taxes are compare to 2018. He leaves out that nominal corporate taxes are 15% less than in 2017. Adding in the effects of inflation and population growth and still neglecting productivity improvements, that’s a 20% cut. Note how he neglects to mention the 60 billion in extra revenue as a result of the tax increases implemented by Trump (without congressional involvement.)

    • I won’t quibble with your characterization of the author, but will admit that we wrongly compared nominal revenue growth to real GDP growth. That has been deleted and a correction appended to the article. As to the rest, the fact remains that spending is climbing much faster than revenues and driving up the deficit.

  • I voted for Trump hoping he’d reign in spending, and he has sorely disappointed me in that regard. If there was a Democrat who would bring up the topic of profligate DC spending, they’d get my vote. We are facing a debt bubble that could subvert our economy for Decades if we don’t get things fixed ASAP.

    • The real problem is Democratic controlled house has focused on “Nothing” instead of writing laws for the benefit of American families.

  • It is a shame that the claim of blaming tax cuts for the deficit goes essentially unchallenged in common media.

    That aside, it is worth noting that, in the same report, the CBO also goes on to explain, “In its most recent baseline projections, CBO estimated that the 2019 budget deficit would be $960 billion. The deficit for the year is expected to be smaller than the shortfall in first 11 months because tax payments due in September are likely to yield a surplus in that month”.

    That doesn’t make it any more sustainable, but the final number appears as if it will be less, not more, with another month in the fiscal year to go.

    The president will receive all the blame for the huge deficit – after all, the buck does stop at his desk. However, I think it’s also important to note that the budget comes out of Congress. If the president had vetoed the budget, he surely would have been met with cries of threatening to “shut down the government”. Given the current conditions regarding the budget process, it’s a lose-lose situation for the president.

  • Excellent analysis. A summary chart would certainly help make the point that spend is the problem not revenue

  • I think it is a simple longtime matter of faith. Democrats believe that Republicans give tax cuts to the rich, because Republicans care about the rich, not like Democrats who care about all the people, but especially the poor and unfortunate. It is very important to Democrats that they are the party who cares.

  • Even if the tax cuts have resulted in an increase in tax receipts this year as this article states, the information here is insufficient to establish what this means, because there’s nothing here comparing the current numbers to those from before the tax cut.

    The tax cut can only be said to be stimulating a rise in tax receipts and ‘partially paying for itself’ if the rate of rise of tax receipts has increased compared to before the new tax regime went into effect, which was mainly in early 2018. Oddly enough, the only comparison made here is with last year, during which tax receipts were already affected by the tax cuts. What seems more likely is that tax receipts are beginning to rise again after the virtual pause last year due to the tax cut. But whether or not they will recover the rate of increase that existed before taxes were cut remains to be seen.

    This is not to say that the rise in spending is not responsible for the lions share of the increase in the deficit. For all the talk of Trump draining the swamp, some things in Washington never change, and it’s a pity he hasn’t chosen to use his considerable influence to try and restrain Congress’s financial irresponsibility.

    • You want both sides. We cannot know what the state of the economy would be without the tax cuts. We have a strong economy with near full employment, strong housing and equity markets, and low interest rates. Trump and Republicans deserve credit for enacting tax cuts and regulation reform. Tax revenues are growing as a result of a booming economy.

  • For an alternative look at how the tax cuts affected revenue, I suggest http://www.crfb.org/blogs/spending-not-tax-cuts-driving-deficit?fbclid=IwAR0pxEiJ0PXMngeDN1V0KsKVC7scGrRz2AbExX_UIpRWNtcyOGYmceVCEZs.

    Since this site won’t let me copy the graph, let me share the details. Percent change in tax year revenue:

    Nominal change in Fiscal year 2018 revenue, including three months before tax cuts took effect = +0.4%.

    Nominal change in Tax (calendar) Year 2018 revenue = MINUS 3.6%

    Real change in Tax (calendar) Year 2018 revenue = MINUS 5.4%

    Tax Year 2018 change as a share of GDP = MINUS 8.1%

    Yes, the tax cuts contributed to the increase in the deficit last year and are doing so again this year.

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