The increase of federal spending has grown the federal deficit to its highest level in six years.
The federal deficit rose to $779 billion in fiscal year 2018, an increase of 17 percent – or $113 billion – from fiscal year 2017, CNBC News reported Monday.
The increase in the national deficit has been attributed to tax cuts. While tax cuts did pave way for an increase in economic growth, tax revenues failed to match the increase in government spending. This issue was further exacerbated by the increase in defense spending, as well as Social Security obligations, Medicaid and disaster relief.
The federal deficit rose 17%, driven in large part by a sharp decline in corporate tax revenues after the Trump tax cuts took effect https://t.co/5VBSYtmaG5
— The New York Times (@nytimes) October 15, 2018
William Gale, a senior fellow at the Brookings Institution, said, “By cutting taxes in 2017 when the economy was already quite strong, Congress and the administration not only missed a golden opportunity to begin to address the fiscal problem, they actually made the problem worse,” according to the Associated Press.
The Federal Reserve estimated a 3.1-percent gain in economic growth as a result of the tax cuts, although the number is lower than anticipated.
“Going forward the President’s economic policies that have stimulated strong economic growth, combined with proposals to cut wasteful spending, will lead America toward a sustainable financial path,” said Treasury Secretary Steve Mnuchin.
Economic growth is an ideal time to reduce the deficit, Gale noted. However, it’s not enough on its own to reduce the deficit.
Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget said, “The budget numbers make very clear that the faster growth isn’t stopping the deficit from increasing.”
Rising interest rates have also contributed to the deficit, with the 10-year U.S. Treasury note increasing from 2.46 percent to 3.15 percent, increasing the cost of financing the deficit itself.
President Trump has criticized the Federal Reserve for the increase in interest rates, calling it “my biggest threat,” according to the Wall Street Journal.
Trump Complains About Rising Interest Rates, Calling the Fed ‘My Biggest Threat’ – WSJ https://t.co/dzGhShylOV
— Trish Regan (@trish_regan) October 16, 2018
He added that he was unhappy with the job of Jerome Powell, Federal Reserve Chairman. “It’s going too fast,” he said of the interest rates. “You looked at the last inflation numbers, they’re very low.”
Slower interest rates aren’t likely to impact the deficit much if spending continues to increase.
“This fiscal picture is a blunt warning to Congress of the dire consequences of irresponsible and unnecessary spending,” said Office of Management and Budget Director Mick Mulvaney.
“Going forward, President Trump and this Administration will continue to work with Congress to make the difficult choices needed to bring fiscal restraint, which, when matched with increasing revenue, will reduce our deficit,” he added.