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The Return of Trillion Dollar Deficits

Monday February 5th, 2018   •   Posted by Craig Eyermann at 6:35am PST   •  

72774473 - trillion, 3d rendering, traffic sign It was only ever a matter of time, but trillion dollar deficits are once again on the radar for the U.S. government.

Susan Cornwell of Reuters has the news:

As the U.S. Congress limps toward the likely passage next week of another stopgap spending bill to avert a government shutdown, a Washington think tank has estimated the federal budget deficit is on track to blow through $1 trillion in 2019.

If it does, it would be the first time since 2012 the U.S. economy will have to support a deficit so large, highlighting a basic shift for the Republican Party, which has traditionally prided itself on fiscal conservatism.

The Committee for a Responsible Federal Budget, a Washington fiscal watchdog, said the red ink may rise in fiscal 2019 to $1.12 trillion. If current policies continue, it said, the deficit could top a record-setting $2 trillion by 2027.

The U.S. federal government ran its first trillion dollar deficit back in 2009, then went on to do so each year until its 2013 fiscal year, where the passage of the Budget Control Act of 2011 forced the Obama administration to rein in its spending, which was followed by the passage of the American Taxpayer Relief Act of 2012, which imposed higher income tax rates beginning in 2013. The combination of these legislative events led to the U.S. government’s deficits dropping below the trillion-dollar mark in 2013, where since then, they went on to bottom at $586 billion in fiscal year 2016, before beginning to rebound to $666 billion at the end of FY 2017 on September 30, 2017.

So what would the return of trillion dollar deficits mean for the rate of growth of the U.S. national debt today?

The following chart, which shows the year over year growth rate of the U.S. total public debt outstanding from January 20, 2009 through February 1, 2018, along with projections of that growth assuming that the U.S. government racks up a $1 trillion deficit in its current 2018 fiscal year, followed by an additional $1.12 trillion deficit in its 2019 fiscal year, illustrates how the growth of the national debt will change.

Year Over Year Growth Rate of the U.S. Government's Total Public Debt Outstanding from January 20, 2009 through February 1, 2018, with Projections Through the End of Fiscal Year 2019 on September 30, 2019

This chart may reveal the answer to why today’s Republican Party would appear to be much more comfortable with allowing trillion dollar deficits than the Tea Party-inspired deficit hawks that were reacting to the nonproductive and excessive federal government spending of the early years of the Obama era. Even with the nation’s total public debt growing by $1 trillion in FY2018 and $1.12 trillion in FY2019 to $22.4 trillion on September 30, 2019, the average year over year rate of growth of the national debt during the Trump era would average 3.7%, which is well less than half of the 9.1% rate of growth that was seen during President Obama’s entire tenure in office. More significantly, it is also less than the average of 4.9% year over year growth for the national debt that was recorded during the final two years of the Obama administration.

That’s partly due to the U.S. national debt having already been allowed to grow to such a gargantuan size over the past nine years, where today’s national debt of $20.5 trillion is nearly double the $10.6 trillion figure that stood when President Obama first assumed office.

What is more important for the American people however is how that projected rate of growth for the national debt compares with the rates of growth of both the nation’s economy and the population. If the rate at which the national debt grows is slower than the rates at which the economy and the population grows, then the burden of the national debt upon regular Americans will decline.

Whether that might happen however is a whole different question to consider.

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February 2018