The United States government announced a budget deficit of 1.695 trillion dollars in fiscal year 2023, which is a 23% increase compared to the previous year
This increase is due to a decrease in revenues and the rise in expenses related to Social Security, Medicare, as well as interest costs for federal debt, as reported by Reuters.
The Treasury Department reported that the current fiscal year’s budget deficit in the United States is the highest since the $2.78 trillion deficit in 2021 during the COVID-19 pandemic. This represents a significant return to high deficit levels after a consecutive decline in the first two years of President Joe Biden’s term.
The announcement comes at a time when President Biden has requested Congress for a $100 billion supplemental budget for new foreign aid and security spending, including $60 billion for Ukraine, $14 billion for Israel, as well as funds for U.S. border security and the Indo-Pacific region, in accordance with Reuters.
This significant deficit, which has surpassed all pre-COVID deficits, including those caused by tax cuts implemented under the Donald Trump administration and those during the financial crisis, is likely to generate budgetary tensions between Biden and Republicans in the House of Representatives.
An agreement has been reached to prevent a government shutdown, although it has disregarded the spending reduction demands of more radical Republicans. However, this agreement has led to the removal of the Speaker of the House of Representatives, Kevin McCarthy, and ongoing negotiations to find his replacement.
The budget deficit for September, the last month of the fiscal year, decreased from $430 billion in September 2022 to $171 billion.
“The decrease in revenues significantly contributes to the deficit in 2023, highlighting the importance of the policies adopted and proposed by President Biden for reforming the tax system”, stated Secretary of the Treasury Janet Yellen and Office of Management and Budget Director Shalanda Young in a joint statement.
The budget deficit for fiscal year 2023 would have been larger by $321 billion, but it was reduced by this amount due to the Supreme Court’s decision to reject President Biden’s proposal to forgive student debts, deeming it unconstitutional. This decision prompted the Treasury to abandon a precautionary fee that had an impact on budget results in fiscal year 2022, leading to an increase in last year’s deficit.
The deficit for fiscal year 2022 was 1.375 trillion dollars.
The deficit in 2023 marks an abrupt end to two years of declining deficits during President Biden’s tenure as COVID-19-related spending has decreased. The U.S. deficit reached its peak in fiscal year 2020, hitting $3.13 trillion in the wake of the most severe recession since the 1930s, significantly reducing tax revenues.
The Congressional Budget Office has warned that under current tax and spending legislation, the U.S. deficit will approach COVID-era levels by the end of the decade, reaching around $2.13 trillion in 2030 as interest, healthcare, and pension costs rise.
For fiscal year 2023, total revenues experienced a decrease of $457 billion, or 9%, compared to fiscal year 2022, primarily due to the reduction in uncollected revenues from personal income tax, owing to weaker performance in the stock market and other financial assets as interest rates increased. Additionally, other reductions in revenues included a $106 billion decrease in Federal Reserve income, as interest paid on bank reserves absorbed any portfolio income.
Expenditures for fiscal year 2023 decreased by $137 billion, representing a 2% reduction compared to the previous year, totaling $6.134 trillion. These expenses would have been even lower if not for significant increases in pension spending, healthcare benefits for the elderly, and debt service costs.
Spending on social insurance saw a 10% increase, reaching a total of $1.416 trillion, due to adjustments for inflation in the cost of living. At the same time, spending on the Medicare program for senior citizens’ healthcare increased by 4%, reaching $1.022 trillion.