WASHINGTON — The Trump administration Friday reported a river of red ink.
The federal deficit for the 2019 budget year surged 26 percent from 2018 to $984.4 billion, its highest point in seven years. The gap is widely expected to top $1 trillion in the current budget year and likely remain above that threshold for the next decade.
The year-over-year widening reflected such factors as revenue lost from the 2017 Trump tax cut and a budget deal that added billions in spending for military and domestic programs.
The trillion-dollar projections stand in sharp contrast to President Donald Trump’s campaign promises that even with revenue lost initially from his tax cuts, he could eliminate the deficit with cuts in spending and more growth.
Q: What happened?
A: The deficit has been rising every year for the past four years. It’s a stretch not seen since the early 1980s, when the deficit exploded with President Ronald Reagan’s big tax cut. For 2019, revenues grew 4 percent. But federal spending jumped twice that rate.
Q: Why doesn’t Washington act?
A: Fiscal hawks have long warned of the economic dangers of running big government deficits. Yet the apocalypse they fear never seems to happen. The government recorded four straight years of deficits that exceeded $1 trillion around the time of the Great Recession, with the worst overrun occurring in 2009 during the Obama administration when the deficit reached nearly 10 percent of the U.S. economy, the highest level since World War II. A growing economy and steps taken by the Obama administration and Congress shrank the deficit to 2.4 percent of the economy in 2015, but it slowly began expanding again, largely because of spending. In 2019, the deficit was 4.6 percent of the economy.
Q: Should we worry?
A: As far as most of us can tell, the huge deficits don’t seem to threaten the economy or elevate the interest rates we pay on credit cards, mortgages and car loans. While a few believe in the “modern monetary theory” — that major economies don’t need to worry because their central banks can just print as much money as they need — most believe a big problem is unfolding. These economists believe deficits will crowd out borrowing by consumers and businesses and elevate interest rates. What’s more, the interest payments on the deficits become part of a mounting government debt that must be repaid.
Q: Are there any signs Washington may take politically painful steps to cut the deficit?
A: In short, no. There has been a major change since the first round of trillion-dollar deficits prompted the Tea Party revolt that brought Republicans back into power in the House and incited fighting with the Obama administration. But once Trump took office, things changed: The president focused on his biggest legislative achievement, the $1.5 trillion tax cut. In January, U.S. Sen, Chuck Grassley co-sponsored legislation again seeking a Constitutional amendment requiring the federal government to balance its budget every year, although such a measre had failed before. “Families, farmers and businesses across my home state of Iowa and across the entire country make difficult decisions every day to balance the books. It’s the responsible thing to do.” the Iowa Republican said. Two months later, he wrote in an opinion piece that it was not the tax cuts but spending to blame. “There’s no question that spending in Washington is out of control. And I won’t pretend that some members of both parties aren’t addicted to putting federal programs on the national credit card.” he wrote. “But for the most part, Republicans, myself included, have been trying to get a hold on federal spending and teach unconcerned federal bureaucrats a thing or two about respecting taxpayer dollars.”
Q: What happens next?
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A: Overall spending is projected to rise by about 16 percent between 2017 and 2020, largely because of bipartisan deals struck by Congress, including a 2018 law that lifted spending limits and disaster relief funding, according to the Committee for a Responsible Federal Budget. Military spending has risen dramatically under Trump, from about $550 billion annually to more than $700 billion in 2019, and Democrats successfully pushed for increases to other parts of the budget in exchange for their support to boost money for defense. The leading Democratic presidential candidates are running on plans for enormous new spending programs that would likely add to the deficit, though some have said they will offset the costs with tax increases. Meanwhile, Republicans have demonstrated little appetite for raising tax revenue after dramatically slashing them in 2017.
The Associated Press and the Washington Post contributed.