Federal Deficit Jumps 17 Percent As Tax Cuts Eat Into Government Revenue

Federal Deficit Jumps 17 Percent As Tax Cuts Eat Into Government Revenue”

The Trump administration announced that the deficit had risen by 17% in the 2018 fiscal year to $779 billion.

The White House also argued that government spending is to blame for the yawning deficit, even though government spending rose just 3 percent during the fiscal year and spending as a share of the economy actually shrank.

Economists generally view the corporate and individual tax cuts passed by the Trump administration late past year and an increase in government spending agreed in early February as likely to balloon the nation's deficit.

The federal government usually increases spending - and deficits - to boost a faltering economy - such as during the 2008 recession triggered by the subprime mortgage and banking crisis. Debt will likely worsen in the coming years with the Trump administration expecting the deficit to top $1 trillion in 2019, almost matching the $1.1 trillion imbalance from 2012.

The 2018 budget deficit was lower than the 34 percent that the Trump administration had been predicted in August. The Republican tax law signed by Trump is expected to add at least $1.9 trillion to the federal deficit, including interest payments, according to the Congressional Budget Office.

In the 2018 fiscal year, which ended Sep 30, the United States took in US$3.3 trillion but spent US$4.1 trillion.

Driven by old-age entitlements and surfing on a wave of retiring boomers, the federal government will continue to pile on more debt unless serious structural reforms are undertaken.

The deficit worsened because tax revenues are not keeping pace with government spending.

During a strong economy, the government typically collects more taxes, resulting in a lower budget deficit.

The corporate tax cut passed last year came into effect, reducing tax collections by $76 billion, or 22% year over year.

"Going forward the President's economic policies that have stimulated strong economic growth, combined with proposals to cut wasteful spending, will lead America toward a sustainable financial path", Mnuchin said.

The Trump administration in July sharply revised higher its deficit estimates for coming years when it released its mid-session budget review.

"President Trump prioritized making a significant investment in America's military after years of reductions in military spending undermined our preparedness and national security", Mnuchin said.

In response to the Treasury's statement, Democrat Senator Bernie Sanders blamed Republicans for the deficit.

Mulvaney put the blame for this deficit increase on Congress.

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