The US budget deficit soared in fiscal year 2023, which will likely complicate Congress’ efforts to come to a federal spending deal before government funding runs out next month.
The deficit was $1.7 trillion for the most recent fiscal year, which ended September 30, according to Treasury Department data released Friday. That marks a $320 billion, or 23%, increase from the prior fiscal year.
However, the deficit essentially doubled to about $2 trillion if the impact of President Joe Biden’s federal student debt cancellation plan – which the Supreme Court struck down before it took effect – is not included.
The US Treasury Department listed the fiscal year 2022 deficit as $1.4 trillion because it took into account the cost of the president’s proposal. Without it, the deficit would have been closer to $1 trillion.
The agency then logged the overturning of the cancellation plan as a savings for fiscal year 2023, which reduced the size of the deficit to $1.7 trillion.
“We are a nation addicted to debt,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “With the economy growing and unemployment near record lows, this was the time to instill fiscal responsibility and reduce our deficits.”
The nation’s hefty debt load will become even costlier in 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 seeks to raise awareness of the US’ long-term fiscal challenges. “Interest costs rose almost 40% last year, and soon we’ll spend more on interest than we do on national defense.”
Also contributing to the growth in the deficit was a sizable drop in tax revenue.
More than 40% of the jump was attributable to lower tax revenues, according to Bernard Yaros, lead US economist for Oxford Economics. Individual income tax receipts plummeted because a weak stock market in 2022 resulted in lower capital gains and because the Internal Revenue Service extended the 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 on Medicaid accounted for just over a quarter of the widening in the budget shortfall, Yaros said. The growing number of Social Security beneficiaries and the inflation-fueled 8.7% cost-of-living adjustment for 2023 contributed to the rise in expenditures.
The annual deficit data will likely factor into Congress’ already-fraught negotiations over funding federal agencies for fiscal year 2024. Lawmakers passed a stopgap spending measure on September 30, just before the federal government was set to shut down. It extended federal funding until November 17.