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A new report from the International Monetary Fund spells out just how serious a hole the U.S. has dug itself in terms of the federal deficit and how actions must be taken now to mitigate it.
“Crisis-era support measures should be immediately terminated, and the political budget cycle and the drive to further increase spending should be resisted,” IMF economists say in the report, “Fiscal Policy in the Great Election Year.” “Reforms are needed to contain rising spending pressures—for instance, through entitlement reforms in advanced economies with aging populations and improving the targeting and efficiency of social safety nets to support the most vulnerable populations.”
The IMF notes that by 2029, global public debt is projected to come close to 99% of GDP, driven primarily by policies in the U.S. and China.
Courtesy of IMF
“Loose fiscal policy and rising debt levels, in addition to monetary policy tightening, have contributed to the increase in longterm government yields and their heightened volatility in the United States, raising risks elsewhere through interest rate spillovers,” according to the report.
Based on data from the U.S. Department of the Treasury, the federal government is running a $1.1T deficit so far in fiscal year 2024, which began on Oct. 1, 2023.
Courtesy of Bipartisan Policy Center
In fiscal 2023, the deficit totaled $1.7T, which was $320B higher than in fiscal 2022.
On April 19, the 10-year bond yield closed at around ~4.6%. On January 2, the first day of trading in 2024, it closed at ~3.9%. That makes paying down the debt more expensive for the federal government.
A recent blog post from the Committee for a Responsible Federal Budget found that spending to service the debt in the first half of fiscal 2024 is already at $429B, an amount equal to 39% of individual income tax paid so far this year. And that figure is projected to reach $870B by the end of the year.
“At this level, interest payments will surpass spending on both defense and Medicare this year and rise to become the second largest line item in the budget,” the blog post reads.
Courtesy of Committee for a Responsible Federal Budget
In March, President Biden announced a budget plan that includes cutting $3T of the deficit over 10 years, primarily by raising taxes on the wealthy and corporations.
However, Biden hasn’t curbed spending either. Early in his presidency, he got a $1.7T stimulus package approved that led to a $2.7T deficit in FY 2021, according to an Axios report. In FY 2022 and FY 2023, the deficits were, respectively, $1.4T and $1.7T.
During his presidency, President Trump’s saw deficits grow immensely, as a result of COVID-19 spending and significant tax cuts, mostly for corporations and the wealthy. The deficit was $3.1T in fiscal 2020, compared to $984B in fiscal 2019, per Congressional Budget Office data.
In Trump’s first full fiscal year in office — fiscal 2018 — the federal deficit was $779B. However, that was $113.3B higher than fiscal 2017, according to the Treasury Department’s Bureau of the Fiscal Service.
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