Why Did the 2019 Deficit Just Hit $1 Trillion?

from Issues & Insights

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 – a growth rate that’s faster than GDP. 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.