Washington: The US government posted the largest monthly budget deficit in American history in February, hitting a dramatic milestone as tax revenue lags and spending levels continue to skyrocket.
The government spent $234 billion (Dh859 billion) more than it brought in through tax receipts last month, much more than the deficit levels hit during the global financial crisis.
Senior Treasury Department officials said the ballooning deficit was largely due to huge spending increases that the White House and Congress agreed to in the past two years, as defence spending and money for other programs went up sharply. But tax receipts are effectively flat since last year, an unusual phenomenon in a growing economy.
That’s because the 2017 GOP tax-cut law has not led to the huge increase in tax revenue that President Donald Trump, Treasury Secretary Steven Mnuchin and many Republican lawmakers had promised would eventually occur.
Critics of the government’s tax and spending approach said the new data proves that many of the budget promises from the White House and lawmakers are false.
“When you pass the most irresponsible tax cut followed by the most irresponsible spending increase, unsurprisingly it leads to the largest deficit numbers,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a group that advocates for deficit reduction. “Predictably, that’s exactly where we landed.”
The tax law was projected to cut roughly $1.5 trillion in revenue over 10 years, an amount the White House promised would be recouped through new economic growth. The economy did grow at a faster clip last year, 2.9 per cent, but it appears to be slowing. Still, top White House officials have continued to insist that economic growth now and in future years will be more than enough to offset the cost of the tax cuts, relying on a controversial type of budgetary forecasting that most economists don’t support.
“If we do get the growth we expect, they will pay for themselves,” Mnuchin told a House committee earlier this month.
Typically when the economy grows and unemployment falls, the budget deficit contracts, because there is more tax revenue coming into the government and spending slows.
But the opposite is happening, and the February data was the latest in reports that show the deficit is worsening rapidly.
In the first five months of the fiscal year, the government has spent $544 billion more than it brought in through tax receipts, Treasury said Friday.
The $544 billion deficit is up 39 per cent from the corresponding period one year ago. For February, the government spent $401 billion and brought in $167 billion in revenue. Tax numbers are traditionally weak in February because many Americans seek tax refunds, but February’s tax receipts were lower than the government received in 2016.
The tax numbers could raise new questions about the overall health of the economy. White House officials have projected that the economy will grow 3.2 per cent this year, but the Federal Reserve and other groups have forecast a much more modest clip.
For the fiscal year, which began in October, tax receipts are down 1 per cent, and spending has increased 9 per cent, Treasury said.
Tax receipts typically rise when the economy grows, but the 2017 tax-cut law has held tax levels down while spending has risen markedly.
Corporate tax receipts, for example, are down $8 billion, or 23 per cent, in the first five months of the fiscal year. As part of the tax cut, corporate tax rates dropped from 35 per cent to 21 per cent.
The big drop in revenue in the first five months of the fiscal year is also attributable to companies taking advantage of other parts of the tax law, including a provision that allows them to deduct new investments in a much more beneficial way than before, said a senior Treasury official, who spoke on the condition of anonymity to discuss the matter in detail.
Individual income taxes, meanwhile, fell $15 billion, or 1 per cent, compared with one year ago.
It was too soon to know whether the $544 billion deficit in the first five months of the fiscal year would mean that the government’s annual deficit would breach $1 trillion, said a senior Treasury official, who spoke on the condition of anonymity to discuss the matter in detail. But the White House did project earlier this month that the deficit this year would hit $1.1 trillion, a level not seen since the recovery from the financial crisis.
There were other signs of the White House’s fiscal policies taking root in the new data.
Customs duties, which include income from tariffs, were up $15 billion, or 91 per cent, compared with the same period one year before. Defence spending was up $28 billion, or 11 per cent, reflecting the joint decision by the White House and Congress to bulk up funding for the military.
During the financial crisis, the budget deficit eclipsed $1 trillion because tax revenue fell sharply and spending increased dramatically, both because of things such as unemployment benefits and new stimulus programs that the Obama administration put in place to try to revive economic growth. Large deficits continued for a few years before falling, in part because of the economic recovery but also because of new spending restraints hammered out between the Obama administration and Republicans in Congress.
The budget deficit began expanding slightly, however, at the end of the Obama administration, but it has jumped sharply during the Trump administration, both because of the tax cuts and because the White House and Congress have agreed to large increases in spending.
White House officials in recent weeks have said they want to put an end to some of these spending increases, but the ballooning deficit figures come as the White House and Congress appear far apart on spending levels for next year.
The White House earlier this month proposed another large increase in defence spending but a sizeable reduction in funding for a number of other agencies, a proposal that many Democrats immediately rejected. The White House and Congress must agree on a budget deal by October or the government will face a partial shutdown that could impact dozens of agencies.