It’s official. The federal budget deficit for Fiscal Year 2019 was $984 billion, an increase of $205 billion from 2018.
That was the grim news delivered on Friday, October 25th by the U.S. Treasury Department.
The deficit increased as a percentage of the economy (GDP) to 4.6 percent from 3.8 percent in 2018, according to a joint statement released by Treasury Secretary Steven Mnuchin and the president’s acting budget director Russell Vought.
This was the fourth consecutive year in which the deficit increased as a percentage of the economy. The rapidly rising deficit reflects a structural gap between spending and revenues that is largely ignored in Washington and on the campaign trail even as it grows worse. Previously, the CBO has projected that under current laws the federal government will begin running $1 trillion annual deficits in 2020 and rising throughout the next 10 years.
Deficits are on an unsustainable path and the problem is not going away on its own.
Federal receipts for Fiscal 2019 totaled $3,462 billion while spending totaled $4,446 billion. The comparable figures for the previous year were $3,328 billion in receipts and $4,107 billion in outlays. As a percentage of GDP, revenues dropped slightly to 16.3 percent from 16.4 percent in 2018. Outlays, mainly driven by the automatic growth of Social Security, Medicare, Medicaid and interest on the debt, increased to 20.9 percent of GDP from 20.2 percent.
When compared against long-term averages, revenues were 1.1 percent below the past 40-year average and outlays were 0.3 percent higher than the past 40-year average. The government’s net interest costs in 2019 totaled $375 billion, a figure that is projected to rise rapidly in the coming decade and is $50 billion more than was spent last year. The 2019 deficit added to the total debt held by the public, which increased to $16.8 trillion (79.1 percent of GDP) at the end of the fiscal year.
What makes the Fiscal 2019 numbers particularly troubling is that they show a worsening picture despite a relatively strong economy. Rather than taking advantage of a strong economy to improve the fiscal picture, Washington policymakers have been making the situation worse.
When the 116th Congress and the Trump Administration took office in January 2017, the CBO was projecting a deficit of $601 billion in 2019. The increase from that projection to the actual outcome came from legislative actions that cut taxes (roughly 60 percent of the change) and increased spending (40 percent of the change).
Policymakers must eventually make some hard choices to bring automatic spending growth and revenues into better alignment. Even if they don’t like to say so publicly, most members of both parties know that this choiceless fiscal policy can’t go on forever.