To grasp what dire shape the budget deficit is in, one only needs to glance at a handful of recent Bloomberg News headlines. There was “U.S. Posts Largest-Ever Monthly Budget Deficit in February” in March, followed by “U.S. Budget Gap Balloons to $739 Billion Despite Tariff Revenue” in June. In July, the headline was “U.S. Budget Gap Widens to $747 Billion in 9 Months Through June,” and the first sentence of the article noted that the deficit had grown by 23 percent this fiscal year, “as rising spending eclipsed a small bump in revenue from the Trump administration’s tariffs. And now, as the summer ends, we have “U.S. Budget Deficit Already Exceeds Last Year’s Total Figure,” which notes that federal expenditures between October and June were up 6.6 percent over the previous fiscal year. The $866 billion budget gap so far this fiscal year represents a 27 percent increase over the same period last year.
The ever-expanding deficit is a direct result of policy choices: the tax cuts passed by President Donald Trump and congressional Republicans in 2017, followed by the spending increases called for in the bipartisan budget deals that followed. The math here is about as basic as it gets. When you reduce tax revenues on the one hand and then increase spending on the other, you increase the deficit, which measures the gap between revenues (taxes) and outlays (spending).
These policy choices have contributed to a federal budget outlook that the Congressional Budget Office (CBO) has repeatedly described as unsustainable—as in, we can’t keep doing this forever. We are currently on track for deficits that exceed $1 trillion starting in 2022, which is expected to equal more than 5 percent of the entire economy. Every dollar that moves through the economy will contain a deficit nickel. Since 1946, that’s only happened five times, mostly in the immediately aftermath of the Great Recession.
But we are not in a recession. In fact, by many measures, these are boom times for the economy, with unemployment rates holding historic lows. That is another reason to worry about the size and trajectory of the federal deficit. As the CBO noted in May, “during the past 50 years, in years when the unemployment rate has been below 6 percent—as it is now—deficits averaged just 1.5 percent of GDP.” Typically, when the economy looks as strong as it does now, and as strong as it has for the last several years, deficits have dropped. Instead, Congress is pushing deficits higher than ever.
At the same time, debt and deficits have almost entirely dropped off the radar as a national political issue for both parties. The leading Democratic candidates have shrugged their shoulders at rising debt, and some have even flirted with the idea that it’s not—and won’t ever really be—a problem at all. President Trump pushed for the most recent budget deal, which will add $1.7 trillion to the federal debt over the next decade, and Mitch McConnell (R–Ky.) presided over a vote to pass it in the Senate. When Trump was warned by staffers that the current budget trajectory risked a budget crisis, he reportedly shrugged it off, saying, “Yeah, I won’t be here.” No one wants to talk about rising debt and deficits, or do much of anything to reverse course.
Doing so would also be a matter of simple math and policy choices. As CBO dryly noted in a late 2018 report on reducing debt and deficits, “to put the federal budget on a sustainable long-term path, lawmakers would need to make significant policy changes—allowing revenues to rise more than they would under current law, reducing spending for large benefit programs to amounts below those currently projected, or adopting some combination of those approaches.”
Just as increasing the deficit is a product of reducing revenues and increasing spending, reducing the deficit can only be accomplished by doing the reverse—taxing more and/or spending less. Given the broad political resistance to increasing middle class taxes, and the prominence of mandatory spending programs such as Social Security and Medicare in the federal spending schema, that almost certainly means an emphasis on the latter, perhaps with a dose of the former—which just happens to be the historical formula for reducing budget deficits. Until that happens, expect the deficit doom headlines to continue.