Current U.S. Federal Budget Deficit

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

Mcconnell Trump and Ryan
••• U.S. President Donald Trump (2nd L) congratulates Speaker of the House Paul Ryan (R-WI) (C) during an event to celebrate Congress passing the Tax Cuts and Jobs Act with Senate Majority Leader Mitch McConnell (R-KY) (L) and other Republican members of the House and Senate on the South Lawn of the White House December 20, 2017 in Washington, DC.  Photo by Chip Somodevilla/Getty Images

The U.S. federal budget deficit for fiscal year 2019 is $985 billion. FY 2019 covers October 1, 2018 through September 30, 2019. The deficit occurs because the U.S. government spending of $4.407 trillion is higher than its revenue of $3.422 trillion.

Four Reasons for the Budget Deficits

Most people blame the deficits on entitlement programs. But that's only half the story. These enormous deficits were the result of four factors.

Two of them 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. That includes the defense department budget and off-budget emergency spending. It also includes spending for departments that support defense, such as Homeland Security, the Department of Veterans Affairs, and the National Nuclear Security Administration. The Trump administration will set new records of defense spending. It is estimated to reach $874.4 billion in FY 2018 and $886 billion in FY 2019.

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 two-thirds 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. The 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 2008 financial crisis 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. Revenue has since recovered. It's projected to reach a new record of $3.4 trillion in FY 2019. That would be enough to cover spending if we just kept it at 2014 levels. 

Why the Government Always Overspends

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.

    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  is a concern when the debt-to-GDP ratio approaches or exceeds 100 percent. At that point, owners of the debt become concerned. They worry that the United States won't make good on its debt. They had reason to be concerned in 2011 and 2013. That's when tea party Republican congressmen threatened to default on the U.S. debt

    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.  

    You should also be concerned when the economy is doing well. The government should be reducing the deficit in an effort to lower the debt. Deficit spending in a healthy economy will make it overheat. An economy that's churning too fast creates a boom and bust cycle. It always leads to a recession. 

    Understand the Current Federal Budget

    Deficit and Budget Summaries