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US deficit at highest level since 2012

The US government is running the largest budget deficit in 6 years. The US deficit rose to $779 billion in fiscal year 2018, up 17% from last year. CNN's Christine Romans reports.

Posted: Oct 17, 2018 12:50 AM
Updated: Oct 17, 2018 1:04 AM

There are two things that can expand a deficit: Decreased tax revenues and increased spending. Right now, we have both.

The federal deficit rose 17% in 2018, to $779 billion — the highest since 2012, thanks to a bigger military budget, rising interest costs, and a giant tax cut.

But Republicans, who have historically decried fiscal irresponsibility, only want to talk about spending.

"It's very disturbing," said Senate Majority Leader Mitch McConnell on Bloomberg TV on Tuesday, on the newly released deficit numbers. "And it's driven by the three big entitlement programs that are very popular, Medicare, Social Security, and Medicaid."

Is that true? Let's look at the Treasury tables. In fiscal year 2018, which ended on September 30, overall spending increased by 3%, or $127 billion. The largest spending increases came from interest on the debt ($65 billion) and the Social Security Administration ($39 billion). Then came defense spending, at $32 billion — increases President Donald Trump and other Republicans demanded in budget negotiations. Medicare and Medicaid — programs Trump has promised not to touch — rose by $17 billion total.

What about the tax side? Budget receipts were basically flat overall. Individual non-withheld and self-employment taxes rose by $89 billion, as they should in a good economy when more people are working. Most of that increase came in April, when taxpayers were filing returns for 2017 — before the Trump tax cuts took effect. Congress' Joint Tax Committee has forecast the overall revenue impact of the individual tax cuts to be much larger in 2019, knocking collections down by $189 billion.

Corporate taxes only constitute about 9% of the government's $3.3 trillion in 2018 collections, but they plunged by $93 billion from last year. According to the Congressional Budget Office, about half of that drop came after June, when companies began paying estimated taxes for the 2018 tax year, at the lower post-tax-cut rate. If there had been no tax cut, collections would have been higher.

Translation: Tax cuts played a key role in boosting the deficit in 2018, and are expected to contribute to deficits in the coming years, contrary to claims from the White House and Congressional Republicans that they would "pay for themselves." Treasury Secretary Steven Mnuchin has said that lower tax rates will boost collections when businesses have had enough time to reinvest their savings in growth, but that's not what's happened after previous tax cuts, and it's not what nonpartisan analysts like the Tax Policy Center think will happen after this one.

But here's the more important question: Does any of this actually matter?

As a percentage of gross domestic product, the deficit in 2018 rose to 3.9% from 3.5% last year. That's higher than the 3.2% average over the last 40 years, but it's nowhere near the 9.8% level reached in 2009, at the depth of the financial crisis, or even the 4.5% during the recession of the early 1990s.

And although interest rate payments of $522 billion seem eye-popping, as a percentage of GDP they're also far below levels paid in the 1980s and 1990s, when fiscal austerity first became a Republican political cause.

There's no guarantee, however, that interest rates will stay as low as they have been. The rate on the 3-month Treasury bill has risen from zero three years ago to 2.27% today, making the debt more expensive to service, and Federal Reserve Chair Jay Powell has said he's likely to continue hiking on that upward path. Also, elevated deficits are highly unusual in heady economic times such as these, when the federal government could be curbing the growth of the debt rather than accelerating it.

That's what much of the rest of the developed world is doing: According to an analysis by the Organization for Economic Cooperation and Development, countries in the euro area are projected to decrease their public debt between 2017 and 2019 as a percentage of GDP by about as much as the United States is projected to increase it.

It also matters what the government is going into debt to do, and what kind of returns it will generate.

Lower-income people, for example, are more likely to spend any extra disposable income they might get from a tax cut than rich people, who are probably already meeting all their needs. The Trump tax cuts disproportionately benefit higher-income people, so they are not well targeted to maximize economic growth.

Infrastructure spending — once a favorite Trump objective — would also be a logical reason to rack up debt, since repairing and building out America's roads, train lines, sewer systems, and broadband connections would improve productivity in a way that no other fiscal policy could.

But that's not why U.S. deficits are rising now. They're rising because of tax cuts, and yes, because of an aging population that's going to need to depend on Social Security and Medicare when they retire.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 578494

Reported Deaths: 9202
CountyCasesDeaths
Marion798821282
Lake43601664
Allen31380537
Hamilton27675303
St. Joseph26409369
Elkhart23873336
Vanderburgh18192211
Tippecanoe16999116
Porter14183158
Johnson14120277
Hendricks13560236
Madison10312209
Vigo10297171
Clark9952128
Monroe8933105
Delaware8638129
LaPorte8589153
Kosciusko777375
Howard7712136
Warrick624990
Hancock621995
Bartholomew616094
Floyd5971105
Wayne5811155
Grant5716108
Dubois533570
Boone523167
Morgan501485
Marshall487084
Henry483262
Cass464959
Noble453956
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Jackson410145
Shelby394376
Lawrence374172
Clinton359838
Gibson348556
DeKalb333063
Montgomery329150
Knox323339
Harrison317242
Miami305043
Steuben300740
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Jefferson242738
Fayette239248
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Greene229259
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LaGrange222061
Scott212837
Clay212432
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Jennings188635
Sullivan185831
Spencer176917
Fountain175125
Washington170216
Starke169241
Jay160521
Fulton156829
Owen155536
Carroll150115
Orange146333
Rush145618
Vermillion141633
Perry141327
Franklin139333
Parke12718
Tipton126232
Pike111325
Blackford105122
Pulaski93636
Newton87820
Brown84428
Benton83010
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Martin68013
Warren6427
Switzerland6035
Union6033
Ohio4547
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Ohio Coronavirus Cases

Data is updated nightly.

Cases: 807293

Reported Deaths: 9990
CountyCasesDeaths
Franklin95508704
Cuyahoga80262964
Hamilton59783436
Montgomery40858396
Summit32488697
Lucas29495575
Butler29100225
Stark24048388
Warren18471135
Lorain17563207
Mahoning16430334
Lake14941134
Clermont14703103
Delaware1349574
Licking12353132
Trumbull12096297
Fairfield1184280
Greene11338132
Medina10815164
Clark10334261
Wood9742153
Allen9355126
Miami867373
Portage8628104
Richland8604111
Marion7231112
Tuscarawas6987172
Columbiana6922124
Pickaway689050
Wayne6599162
Muskingum648939
Erie5729117
Hancock529088
Ross518287
Scioto508753
Geauga469955
Darke450589
Ashtabula431467
Union422327
Mercer419485
Lawrence417051
Sandusky413262
Auglaize407059
Shelby404621
Seneca404354
Huron399738
Jefferson391565
Belmont378140
Putnam359370
Washington357039
Athens35469
Madison331128
Knox329022
Ashland322538
Fulton319043
Defiance311476
Crawford306769
Preble306434
Brown289617
Logan284828
Ottawa275534
Clinton272741
Williams265757
Highland255618
Jackson250743
Guernsey234625
Champaign233727
Fayette218929
Morrow21754
Holmes215562
Perry215317
Henry206147
Hardin200932
Coshocton194517
Van Wert193744
Wyandot186948
Gallia186226
Adams160815
Pike160116
Hocking157423
Carroll143216
Paulding137521
Noble116138
Meigs99021
Monroe93827
Harrison8428
Morgan75826
Vinton64013
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