The U.S. budget deficit is growing at a crisis pace amid soaring interest costs.
Revenue and Spending Trends
In fiscal year 2024 (October 2023 - January 2024), revenues totaled $1.58 trillion, compared to $1.47 trillion in 2023, $1.52 trillion in 2022, and $1.18 trillion through 2020 over the same time period.
Spending rose to a record $2.11 trillion over the same time period, against $1.93 trillion in 2023, $1.78 trillion in 2022, and $1.57 trillion in 2020.
All these resulted in a budget deficit of $532 billion, against $460 billion, $258 billion, and $390 billion in the previous periods.
In history, a higher deficit ($735 billion) for the comparable period was only in the COVID-19 period of 2021 (October 2020 - January 2021).
Inflation-Adjusted Deficit Analysis
In the crisis years 2009 - 2011, the deficit was around $400 - $430 billion at par. How does this compare with inflation-adjusted?
The official GDP deflator creates an accumulated inflation of 18% by 4Q 2019 and about 37% by 4Q 2010, meaning $430 billion in 2010 corresponds to $590 billion in 2024, i.e., a crisis budget.
Implications of Spending Increases
Spending in FY 2024 is up $184 billion over FY 2023.
- $89 billion of that increase came from net interest costs, which totaled $283 billion in 4 months, or less than $900 billion year-over-year
- $61 billion - bank bailout
- $59 billion - pensions and veterans support
- $34 billion for defense
- $28 billion - medicine.
The above categories increased by $271 billion in 4 months, with targeted social spending (a major source of spending and stimulus in 2020-2021) and education - minus $15 billion - seeing the largest cuts - $73 billion.
Demographics and inflation will reinforce the upward trend in medical and pension spending over the long term. Defense spending will also rise, as will interest.
Conclusion
Based on the information presented, it can be concluded that the fiscal deficit is expected to increase further. With the current background deficit of about $2 trillion per annum, the trajectory suggests further deficit growth. This points to an urgent need to develop effective fiscal management strategies to address and mitigate the potential effects of the growing deficit on the economy.