Current U.S. Federal Budget Deficit

4 Reasons the U.S. Deficit Is Out of Control

Trump and Obama
U.S. President Barack Obama speaks while meeting with President-elect Donald Trump (L) following a meeting in the Oval Office November 10, 2016 in Washington, DC. Trump is scheduled to meet with members of the Republican leadership in Congress later today on Capitol Hill. Photo by Win McNamee/Getty Images

What Is the Current Deficit?

The U.S. federal budget deficit for fiscal year 2018 is $440 billion. FY 2018 covers October 1, 2017 through September 30, 2018. The deficit occurs because the U.S. government spending of $4.094 trillion is higher than its revenue of $3.654 trillion. (Source: "2018 Budget. Table 2," Office of Management and Budget, March 16, 2017. “Mid-Session Review Fiscal Year 2017. Table S-5,” OMB, July 15, 2016.)

Four Reasons for the Budget Deficits

Most people blame the deficits on the 2008 financial crisis. But that's only half the story. These enormous deficits were the result of four factors. Only the last two are related to the recession.

First, the attacks on 9/11 led to the War on Terror. That almost doubled annual military spending. It rose from $437.4 billion in 2003 to a peak of $855.1 billion in 2011. For more, see Military Budget.

Second, mandatory spending has increased. That means benefit payouts for Social Security, Medicare and other mandated programs. It's exceeded $2 trillion a year since FY 2011. These payments consume most of the revenue each year. Only an Act of Congress that amends a program's benefits can change them. That would require a majority vote in both houses and is unlikely to happen. Any reduction in benefits takes money out of the pockets of current beneficiaries. This powerful demographic of seniors would vote lawmakers out of office.

 

Third, the $787 billion economic stimulus package added to the 2009 deficit. That's because it cut taxes and extended unemployment benefits. It also funded public works projects to create jobs. But this expansionary fiscal policy was needed to push the economy out of recession. In fact, it did so in the second quarter of 2009.

Fourth, the recession reduced federal revenue and taxes. As the economy tanked, so did tax revenues. Government income fell from its pre-recession record of $2.57 trillion in FY 2007 to $2.1 trillion in FY 2009. It didn't recover until FY 2013 when it reached $2.78 trillion.

Why Does the Government Always Overspend?

The difference between the U.S. government and you is that the president and Congress overspend on purpose. That's for three reasons:

  1. The more the government spends, the more it stimulates the economy. That's because government spending is itself a component of gross domestic product.
  2. There are many other countries willing to lend us the money, like China.
  3. Politicians get elected for creating jobs and growing the economy. They lose elections for raising taxes and unemployment.

When You Should Be Concerned

A budget deficit is not an immediate crisis. In moderation, it increases economic growth. It puts money in the pockets of businesses and families. Their spending creates a stronger economy. That makes other countries happy to lend to the U.S. government. It has always paid the debt back.

It's only when the debt-to-GDP ratio approaches or exceeds 100 percent that owners of the debt become concerned.

That's because they might wonder whether the United States will make good on its debt. Lenders grew worried in 2011 and 2013. That's when tea party Republican congressmen threatened to default on the U.S. debt

The Deficit Is Being Reduced

The government reduced the deficit for the FY 2017 budget. But it has no intention of eliminating it. The OMB forecasts that the deficit will become a surplus by FY 2027.  Any deficit reduction necessitates painful and hotly disputed spending cuts or tax hikes. That would be the first time the budget was balanced since President Clinton's administration. For more, see Current Federal Budget Breakdown.

Understand the Current Federal Budget

Deficit and Budget Summaries