1/20/2024 0 Comments Government deficitNon-interest outlays (excluding the effects of student loan forgiveness) have been, on net, unchanged as a share of GDP, while interest costs have increased. What has caused the deficit to increase this year?Īs can be seen in the table below, the main cause of the increase in the deficit is lower revenues in FY 2023 compared to FY 2022. Excluding this outlay reduction, the deficit in the first 11 months of FY 2023 is actually 7% of GDP-almost twice as large as in the same period in FY 2022. That reduction in outlays sharply reduces this year’s deficit. So, in August 2023, CBO recorded a reduction in outlays in FY 2023 essentially reversing its previous accounting. In September 2022, CBO increased its estimates of federal outlays for fiscal year 2022 to reflect the cost of the loan forgiveness (which was calculated as the present value of the loan repayments that would have been forgiven under the Biden plan.) Then the Supreme Court ruled the plan was unconstitutional. Meaningful comparisons between this year’s deficit and last year’s require an adjustment for the rise and fall of President Biden’s student loan forgiveness plan. (Measuring the deficit as a share of GDP adjusts for inflation and, more broadly, shows the deficit in comparison to a measure of the nation’s ability to finance it.) As a share of GDP, the deficit has increased from around 3.8% in the first 11 months of 2022 to 5.7% this year. The deficit over the first 11 months of fiscal year 2023 (from October 2022 to August 2023) was $1.5 trillion, up $600 billion from last year. If the recent increase in rates is temporary, or if reflects an increase in expected GDP growth, then it will not affect the sustainability of the federal debt. As for interest rates, it is too soon to know whether the recent increases will persist, and if so, why. The rise in the deficit this year isn’t because of a sudden surge in spending-it mostly reflects a fall in revenues from unusually high levels last year. faces long-run fiscal challenges associated with population aging that will require tax increases and spending cuts. Interest rates-a big issue given the level of the federal debt–have risen notably in recent months. budget deficit is on track to be much bigger this year than last.
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