Jeff Stein in the Washington Post has an alarming story about the federal deficit that comes with this chart:
I was all ready to lay into this because the numbers seemed wrong. The CBO's most recent estimates for the federal deficit were $1.4 trillion in 2022 and $1.5 trillion in 2023. That's an increase of $100 billion, only a little bit more than inflation.
But Stein is right and I was wrong. There are two things that caused this:
- In September 2022 the Treasury took a $430 billion charge for President Biden's student loan forgiveness program. In reality, that never happened, so spending was $430 billion less than the official figure.
- There was a big decline in tax revenue late in 2023. The CBO estimated revenue of $4.8 trillion, but in reality it looks like revenues will come in at only $4.4 trillion.
Bottom line: The deficit in 2022 was $430 billion lower than the original CBO estimate while the deficit in 2023 is now projected to be $400 billion higher. This nets out to an annual increase of nearly $1 trillion rather than $100 billion—and this in turn produces an approximate doubling from 2022 to 2023. That said, if you extend the chart with projections for future years it looks a little less alarming:
2022 and 2023 are both outliers, and if the CBO's projections are correct the deficit has been steadily increasing since 2017 and will stabilize around 6% of GDP. That's very high, but perhaps not quite as alarming as a doubling from 2022 to 2023 would imply.
POSTSCRIPT: The lower spending figure for 2022 means that spending increased about 5.4% in 2023 after adjusting for inflation. That's considerably more than the -2.0% decline you get just by looking at the official numbers (which include the fictional student loan costs).
How does the CBO score taking money from my right pocket and putting it my left pocket?
What's scary about the story is the impact of rising interest rates. Remember Clinton's beef about having to placate the bankers? That's where we're headed again. As long as I'm being nostalgic a certain new president's administration was worrying about not having enough bonds to sell, and discontinuing the 30-yr bonds. GWB surely fixed that problem.
Why are we forced to care about the deficit? Because Republicans might say mean things?
They clearly don't care about it when they're in charge, so why do we perpetually fall for this scam designed to keep us from doing big things?
Why are we forced to care about the deficit? Because Republicans might say mean things?
Because inflation is no longer ultra low, that's why. It's possible we'll return to the 2008-2019 dynamic—some economists predict we will. But others disagree.
I agree the deficit numbers aren't catastrophic—and Kevin puts some useful context on Stein's article, which I thought was dreadful—but in the middle of an expansion, you ideally want the public debt ratio to be declining. Six+ percent of GDP deficits are not consistent with that, I fear, unless the growth potential of the US economy is a whole lot stronger than it has been for most of the last couple of decades.
The kind of modest revenue enhancements that would easily fix things would cause very little pain. But our political system is incapable of such routine fiscal housekeeping. Especially heading into an election year.
So basically we're saying that the description of the change in the deficit changed BECAUSE IT WAS LOWER IN 2022 THAN EXPECTED.
Funny how I haven't seen anything about the 2022 deficit being a half trillion lower that predicted, but I keep seeing how the 2023 deficit doubled because of it.
Good catch, Kevin.
Tax revenue was lower than the CBO projected because the stock market wasn't as bubbly as it had been and capital-gains taxes fell off. Also the interest-rate raises have had some effects, reducing the value of bond holdings. But as Kevin has shown, corporate profits have continued to be extremely high. As an answer to Republicans' whining about the deficit, somebody needs to calculate the shortfall in corporate taxes because of the 2017 cuts.
This story needs further distillation. As a couple individuals posted, interest rates have had an impact but would like to see the number and a projection when they come back down. Also, some tax cuts are about to expire. Also, we need to know how the infrastructure package been laid out. And a $400b shortfall in capital gains late 2023? Very curious.
And a $400b shortfall in capital gains late 2023? Very curious.
Tech stocks took a hit.
If you repeal the Trump tax cuts and tax "carried interest" as regular income, what does the deficit look like? I'll believe that the deficit is an existential problem when the GOP is willing to raise taxes to fix it. Until then, I'm not going to pay much attention to it.
No no no - we just have to cut taxes *more* for the 1% and corporations! Then we'll reach the blissful promised land!
Possibly part of the discrepancy is residents of California and parts of two other states have not paid their federal taxes yet, due Oct. 16?