In the U.S. government’s current fiscal year, the annual budget deficit roughly doubled to $2 trillion, even though the treasury reported the shortfall as $1.7 trillion, The New York Times reported.
An accounting gimmick made the increase seem smaller than it really is, according to the NYT.
The trick has to do with President Joe Biden trying to erase more than $300 billion in student debt in 2022.
The Supreme Court voided the proposal, so the debt was never actually erased. However, when the plan was proposed, the treasury recorded it as a $300-billion cost to the government, which inflated last year’s deficit.
Then, when the court killed the plan, the treasury recorded the same $300 billion as a savings.
As a result, the treasury reported last year’s deficit as $1.37 trillion. When the $300 billion is subtracted from that—the cost that was never actually incurred—and that $300 billion is added back into this year’s deficit, the actual black hole widens from $1 trillion last year to $2 trillion this year.
“In other words, [the] treasury assumed it saved $300 billion in 2023, when all it really did was reverse a charge that never actually existed,” the NYT wrote.
The fiscal sleight-of-hand comes at a time when Republicans in Congress are demanding draconian budget cuts to approve a new federal budget, even as Biden is asking for $104 billion in increased military and humanitarian aid for Ukraine, Israel, and Palestinian civilians caught in the Mideast war, and for added security measures at the southern U.S. border.
The current stop-gap spending extension expires on 17 November.
The $10.6 trillion in interest the U.S. is on track to owe over the next 10 years is more than twice the interest the government paid in the past 20 years, the Peter G. Peterson Foundation calculated.
“We are seeing in real time the painful combination of rising debt, inflation, and interest costs all leading to even more debt,” foundation CEO Michael Peterson said in a statement. “Interest costs rose almost 40 percent last year and soon we’ll spend more on interest than we do on national defense.”
The Biden administration earmarked $80 billion in a spending bill last year to add auditors to the Internal Revenue Service, over Republican objections, to collect unpaid taxes.
Republicans in the House of Representatives have cut about $25 billion from that allotment, a cut that will add $24 billion back to the annual deficit, the nonpartisan Congressional Budget Office estimates.
Making matters worse, falling tax revenues made up 40 percent of this year’s deficit increase, chief U.S. economist Bernard Yaros at Oxford Economics has calculated.
Capital gains taxes are down due to glum financial markets; claims under a COVID-era tax break have increased; and the IRS decided to extend filing periods for households and businesses in Alabama, California, and Georgia, which were hit by natural disasters.
International watchdogs also are expressing worry over the U.S.’s precarious financial situation.
U.S. fiscal policy “is too loose,” Gita Gopinath, first deputy managing director of the International Monetary Fund, said in a press interview earlier this month. “This is the time for fiscal consolidation and to rebuild buffers.”
“We are a nation addicted to debt,” Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, told CNN. “With the economy growing and unemployment near record lows, this was the time to instill fiscal responsibility and reduce our deficits.”
TRENDPOST: The current levels of borrowing are unsustainable, especially when today’s high interest rates are likely to remain well into 2024. (See “Worries Increase Over U.S. Debt, Budget Crisis” in this issue.)
The national debt surpassed $33 trillion this year and if the current spending trajectory continues, interest on the debt will be the main item in the federal budget by 2053.
This year, the interest bill is $659 billion, up from $475 billion last year.
TRENDPOST: Adding stupidity to ignorance, U.S. Treasury Secretary Janet Yellen said last week that despite America’s heavy debt load, “America can certainly afford to stand with Israel and to support Israel’s military needs and we also can and must support Ukraine in its struggle against Russia.”