The U.S. deficit has doubled this year and is now pegged at $ 1.7 trillion. The widening gap between what the government spends and what it earns comes as Congress continues to spar over the proper levels of federal spending, according to The New York Times.
The latest Treasury Department figures showed a budget deficit of $1.7 trillion in 2023, up from $1.37 trillion in 2022. According to the New York Times, those numbers make the deficit look smaller than it actually was last year, because of an accounting mirage related to a student-loan forgiveness program that President Biden proposed last year.
Even without the student loan factor, the size of the federal deficit, and is becoming a serious problem as the United States continues to endlessly expand its national debt.
Federal Deficit, 2001-2023
Source: U.S. Department of Treasury
There are a number of factors that contributed to the doubling of the U.S. deficit this year. First, the pandemic which incentivized the federal government to spend trillions of dollars on relief programs and stimulus packages. Indeed, the pandemic has led to significant economic disruptions and increased government spending on healthcare and other programs. For example, the federal government spent trillions of dollars on economic stimulus packages in 2020 and 2021 to help businesses and individuals stay afloat during the pandemic.
Second, the war in Ukraine has also increased government deficit. The war has caused energy prices to soar and disrupted global supply chains, which has led to higher inflation and slower economic growth in the United States. The federal government has also provided billions of dollars in military and financial aid to Ukraine and its allies.
And third, the rise of interest rates since early 2022 also led to the doubling of the federal deficit. The war has caused energy prices to soar and disrupted global supply chains, which has led to higher inflation and slower economic growth in the United States. The federal government has also provided billions of dollars in military and financial aid to Ukraine and its allies.
The doubling of the federal deficit is not ideal for the U.S. economy as it could lead to a set of serious problems. It could lead to higher interest rates. When the government borrows money, it competes with businesses and individuals for loans. This can lead to higher interest rates, which can make it more expensive for businesses to invest and for consumers to buy homes and cars. It could also maintain inflation high because too much government borrowing increases the money supply and the increase of the money supply triggers inflation. This means that the government will sooner or later have to raise taxes or cut spending to pay off its debt, and this can put upward pressure on prices.
Some economists argue that the negative effects of a large government deficit can be offset by other factors, such as a growing economy. However, there is a broad consensus among economists that a large government deficit is a potential risk to the economy.
The most realistic and effective approach to reducing the federal deficit is to simply cut spending by downsizing government regulatory agencies. While increasing taxes is another option to address the deficit, it is a less effective method increasing taxes will only disincentivize taxpayers to keep producing output.