Four Years of Falling U.S. Budget Deficits End


Monday October 17th, 2016   •   Posted by Craig Eyermann at 6:08am PDT   •  

Just over five years ago, the U.S. Congress passed the Budget Control Act of 2011, which President Obama signed into law on August 2, 2011. The law represented an attempt to arrest the phenomenal spending growth that led to the explosion of the national debt during President Obama’s first two years in office.

The most remarkable thing about the Budget Control Act is that it actually worked. The U.S. government’s spending fell, and when combined with a long delayed economic recovery that boosted tax revenues, the federal budget deficits began to fall. And they fell each year through 2015.

And then, in 2016, the annual budget deficits stopped falling and began growing again.

Annual_US-Government_Budget_Deficits_2008_through_2016

Reuters’ Lindsay Dunsmuir reports:

The U.S. budget deficit widened to $587 billion for the fiscal year 2016 on slower-than-expected revenues and higher spending for programs including Social Security and Medicare, the Treasury Department said on Friday.

The 2016 deficit increased to 3.2 percent of gross domestic product.

It was the first time the deficit increased in relation to economic output since 2009, according to figures from the Congressional Budget Office. That year, the deficit peaked at $1.4 trillion amid the financial crisis.

From 2015 to 2016, the U.S. budget deficit increased by $148 billion, or by 33.7%. The increase in the deficit was caused by a 5% increase in the federal government’s year-over-year spending, particularly for the mandatory expenditures of net interest on the national debt, Social Security, Medicare, Medicaid and the Affordable Care Act.

At the same time, the government’s tax collections only increased by 1%, which was less than what had been expected. Saleha Mohsin of Bloomberg reports:

“The slowdown in tax collections suggests some cooling in labor market activity,” said Gennadiy Goldberg, a strategist at TD Securities LLC in New York. He sees the higher budget deficits implying more borrowing needs by Treasury.

The rising deficit also comes amid warnings from the International Monetary Fund last week of the risks of increasing debt loads, which it says complicates the task for policy makers who have pledged to use fiscal policy to give the global economy a fillip.

Debt levels are seen rising under both U.S. election candidates.

Under current law, the mandatory expenditures that caused the increase in 2016’s budget deficit will continue to increase on autopilot and add to the government’s deficits and the national debt indefinitely, unless the U.S. Congress acts to regain control over them.

Whether and how they might actually go about doing that is something of an open question.




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