Uncle Sam’s income has plummeted this year, sending the federal deficit spiraling deeper into the red than analysts had predicted and leaving officials grasping for answers.
Eight months into the fiscal year, the government is already $1.16 trillion in debt, according to the latest Treasury Department numbers released Monday, which suggest the end of the post-pandemic fiscal honeymoon.
The problem is hitting both sides of the government’s ledger, with rising spending and falling income. But it’s the revenue numbers that are mystifying analysts, who had not figured tax payments would drop off so quickly.
The Congressional Budget Office said individual and payroll taxes are coming in way below last year’s levels.
“The reasons for the difference will be better understood as additional information becomes available, although one factor may be smaller collections of taxes on capital gains and other types of income,” the CBO said.
The Treasury Department said that since last Oct. 1, the start of the fiscal year, through the end of May, the government has spent $4.16 trillion but only collected $2.99 trillion in revenue.
Through the same period in fiscal year 2022, those numbers were $3.8 trillion in spending and $3.37 trillion in revenue — a shortfall of less than $500 billion.
The government ended the last fiscal year with a $1.38 trillion deficit, and this year’s figure is rapidly approaching that. Indeed, it’s already reached the full-year projection that Mr. Biden made in his 2023 budget, and there are four more months of pain ahead.
“Revenue is down, spending is up, and our borrowing over the past year has blown past $2 trillion – $240 billion in May alone,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Usually the government experiences some good months and some bad months in a given fiscal year. But so far, every month this fiscal year has been worse than last year.
April, usually the best month for the government, saw just a $102 billion surplus, compared to $373 billion last year. In May, the government collected $307 billion but spent $548 billion, leaving a one-month deficit of $240 billion.
Social Security remains the single largest spending item, at $116 billion last month. Federal health and Medicare accounts combined for $153 billion more. Defense was $66 billion, and welfare benefits amounted to $64 billion. Interest on the debt was $61 billion.
The last time the government ran an annual surplus was in 2001.
The record deficit was set in 2020, when Congress opened the spending floodgates amid the pandemic and ended $3.13 trillion in arrears. The next year, 2021, wasn’t much better, ending with a $2.77 trillion deficit.
The future looks grim, too.
CBO says the government will run annual trillion-dollar deficits for the rest of this decade. It will top the $2 trillion mark again in 2030, and will be flirting with $3 trillion by 2033.
But those projections were made at a time when CBO was forecasting only a slight drop in revenue this year, falling $82 billion to reach $4.82 trillion. In actuality, revenue is down $380 billion so far this year.
The plunging revenue was responsible for forcing the debt ceiling fight on Capitol Hill. Budget gurus had originally thought Congress would have until the late summer to raise the government’s borrowing limit. But April, usually the biggest month for revenue with Americans’ tax payments due, was so disappointing that the date for the government to run out of maneuvering room got bumped up to early June.
President Biden and House Speaker Kevin McCarthy struck a deal to extend the government’s borrowing power until after next year’s elections, while making trims to spending.
Those cuts should hit in fiscal year 2024, and don’t show up in Treasury’s numbers for the first eight months of fiscal year 2023.
CBO says the deal will mean that the government’s debt will rise a bit more slowly, reaching $45.2 trillion in 2033, rather than $46.7 trillion that year.
Some conservatives say that’s too timid, and blame Mr. McCarthy for bungling the negotiations. A rump group of conservatives has vowed to slow business in the House until Mr. McCarthy agrees to new demands.
Ms. MacGuineas said the debt deal is the largest deficit reduction in a decade, and she said it was particularly noteworthy because it was an “all-too-rare bipartisan win.”
The deal dealt with basic discretionary spending — the programs Congress reviews every year — but left untouched the big entitlement programs that promise to drive spending increases in the coming years. It also didn’t include any new tax increases.
Ms. MacGuineas said Washington will need to be willing to look at all of those aspects.
“Today’s Treasury numbers serve as a stark reminder that our fiscal challenges are far from over,” she said. “Much more will need to be done to ensure we don’t burden future generations with a smaller economy and a larger national debt.”
