CNN –
The U.S. budget deficit rose sharply in fiscal 2023, likely complicating efforts by Congress to reach an agreement on federal spending before federal funding runs out next month.
The deficit was $1.7 trillion in the most recent fiscal year that ended Sept. 30, according to Treasury Department data released Friday. That represents an increase of $320 billion, or 23%, over the previous fiscal year.
However, the deficit essentially doubled to about $2 trillion if one excludes the impact of President Joe Biden’s federal student debt relief plan – which the Supreme Court struck down before it took effect.
The U.S. Treasury put the fiscal 2022 deficit at $1.4 trillion as it took into account the cost of the president’s proposal. Without them, the deficit would have been closer to a trillion US dollars.
The agency then recorded the cancellation of the cancellation plan as a savings for the 2023 fiscal year, reducing the size of the deficit to $1.7 trillion.
“We are a debt-addicted nation,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “With the economy growing and unemployment near record lows, it was time to take fiscal responsibility and reduce our deficits.”
The country’s high debt burden will become even more expensive in the coming years as interest payments rise.
“We are seeing in real time the painful combination of rising debt, inflation and interest costs, all leading to even more debt,” said Michael Peterson, CEO of the Peter G. Peterson Foundation, a nonpartisan organization that aims to raise awareness of long-term fiscal needs Challenges of the USA. “Interest costs rose nearly 40% last year, and soon we will be spending more on interest than on national defense.”
A significant decline in tax revenue also contributed to the increase in the deficit.
More than 40% of the increase was due to lower tax revenues, according to Bernard Yaros, senior U.S. economist at Oxford Economics. Individual income tax revenue fell because a weak stock market led to lower capital gains in 2022 and because the Internal Revenue Service extended tax deadlines for much of California and parts of Alabama and Georgia due to natural disasters.
In addition, increased spending on entitlement programs, including Social Security and Medicare, as well as Medicaid, accounted for just over a quarter of the expansion in the budget deficit, Yaros said. The growing number of Social Security recipients and the 8.7% inflation-related cost of living adjustment for 2023 contributed to the increase in spending.
The annual deficit data will likely factor into Congress’ already intense negotiations over funding for federal agencies for the 2024 fiscal year. Lawmakers passed a stopgap spending measure on Sept. 30, just before the federal government was set to shut down. Federal funding was extended until November 17th.