Why US Federal Budget Deficit Is a Worry Again, and Will Remain So

The federal budget deficit, an on-again, off-again concern for the US electorate and economy, is back on. A spending surge under President Joe Biden, following tax cuts under Donald Trump, swelled the gap between revenue raised and funds committed just as a spike in interest rates made carrying debt more expensive. With projections pointing to outsize gaps for years to come, and politicians in Washington in repeated brinkmanship over the issue, concern about deficits is beginning to rattle financial markets.

It clocked in at $1.7 trillion in fiscal year 2023, up from $1.38 trillion in 2022. That sort of surge typically happens only when the government is in recession-fighting mode, not when the economy is growing at a decent clip. Even judged in the context of the US economy, the deficit is imposing. It equaled 6.3% of gross domestic product in 2023, a level untouched for six decades until the 2008 global financial crash. The annual shortfall is forecast to keep growing, reaching $2.6 trillion in 2034. And each deficit adds to an already mammoth amount of publicly held debt — $27.6 trillion as of April 1, nearly the size of the economy.

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