Troubling Increase in Federal Deficit

Blog Post
Monday, October 08, 2018

The federal deficit for Fiscal 2018 totaled $782 billion, an increase of $116 billion over the previous fiscal year, the Congressional Budget Office (CBO) estimated late last week.

While those numbers are troubling enough, they get even worse when shifts in the timing of some federal payments are taken into account. Were it not for those shifts, CBO says, the 2018 deficit would have been $826 billion, which is $162 billion larger than in Fiscal 2017.

The deficit for Fiscal 2018, which ended Sept. 30, substantially boosted the accumulated federal debt. That debt now totals $21.6 trillion and is expected to continue rising rapidly. CBO has previously warned that annual deficits could top $1 trillion as soon as Fiscal 2020.

The CBO’s new estimates for Fiscal 2018 came in its Monthly Budget Review for September. The Treasury Department is expected to report the actual deficit for Fiscal 2018 later this month.

While the 2018 deficit was already expected to show a substantial increase over the previous year, the CBO’s estimates are a reminder that Congress and President Trump have not only failed to address the big fiscal challenges facing the country, they have made them worse.

Despite the booming economy, CBO estimates that total federal receipts rose by less than 1 percent in Fiscal 2018. Total spending, however, rose by 3 percent -- and would have risen by 4.4 percent if not for certain payment timing shifts.

Thus the basic structural problem in the federal budget -- the disconnect between revenue and spending -- worsened.

Economists frequently focus on annual deficits relative to the size of the American economy. CBO says the 2018 deficit reached an estimated 3.9 percent of GDP, a sharp increase from 3.5 percent the previous year.

If not for the timing shifts in federal payments, the 2018 figure would be an even more disturbing 4.1 percent of GDP. The budget office noted that Fiscal 2018 was the third consecutive year in which the deficit increased as a percentage of GDP.

Another estimate that should alarm Washington is a 20 percent increase ($62 billion) in net interest on the public debt, after adjusting for payment timing shifts.

This increase is partly because of higher interest rates and the rising debt. In addition, CBO says, higher inflation required upward adjustments in the principal of federal inflation-protected securities.

The budget office, The Concord Coalition and others have frequently warned that rising interest costs will put increasing pressure on the rest of the federal budget, squeezing even high national priorities.

Spending on the three largest “mandatory” spending programs -- Social Security, Medicare and Medicaid -- together increased by 4 percent over the previous year, with adjustments for payment timing shifts.

Other notable spending increases included 6 percent for the Defense Department and 36 percent for the Department of Homeland Security, largely because of disaster relief activities.

The rapidly increasing deficit and debt should be central issues in this fall’s elections. Voters should expect congressional incumbents and challengers alike to present credible plans to put the federal budget on a more sustainable path.