The federal budget deficit for fiscal year 2023 was $1.695 trillion, up from $1.375 trillion the prior year, according to data released Friday by the Treasury Department. Receipts for the year came in just over $4.4 trillion, down more than 10% from nearly $4.9 trillion in fiscal year 2022. Outlays fell 2%, from almost $6.3 trillion to about $6.1 trillion. Net interest costs surged to $659 billion, up from $476 billion in 2022 and $352 billion in 2021.
“Most economists say these payments are economically wasteful, because the government could spend money in more productive ways than paying back bondholders,” The Washington Post’s Jeff Stein noted.
Budget watchers warned again about the trajectory of U.S. debt. “The federal government spent more on interest than children in 2023, and we’ll spend more on interest than national defense by 2027,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a non-partisan group that advocates for deficit reduction. “In the face of legitimate emergency needs like natural disasters or foreign conflicts, these interest burdens mean we are not as nimble as we otherwise could be to respond.”
Big swings because of student debt plans: The deficit totals for both 2022 and 2023 were affected by the accounting for President Joe Biden’s plan to cancel student loan debt for millions of Americans, though in opposite directions.
The estimated long-term cost of the plan, nearly $400 billion, was added to federal outlays for fiscal year 2022, significantly raising the deficit that year. But the Supreme Court rejected the Biden plan in a June 2023 decision, preventing it from being implemented, so the administration recorded a similar, $333 billion reduction in outlays, reducing the deficit for 2023. (The difference between the cost one year and savings the next was primarily due to the Biden administration’s new income-driven repayment plan, a replacement of sorts for the rejected program, which increased the government’s cost of outstanding student loans.)
Without the accounting effects of the student debt plan, the 2022 deficit would have been $900 billion, according to the Congressional Budget Office, and the 2023 deficit would have been $2 trillion.
In other words, the deficit would have more than doubled.
The White House blames the Trump tax cuts: The rising deficit could pose a problem for Biden, who has frequently highlighted the $1.7 trillion in deficit reduction achieved during his first two years in office (though many analysts have called into question just how much credit Bided deserves for that reduction, given that it resulted largely from the expiration of emergency pandemic aid programs).
As Biden tries to highlight the surprising strength of the economy, the White House has sought to deflect blame for the growing deficit, instead pointing to Republican tax cuts and decades of trickle-down economics. Asked about the deficit by a reporter last week, White House Press Secretary Karine Jean-Pierre cited the effects of Republican tax cuts and trickle-down economics. “This is what we believe is MAGA-nomics deficit,” she said.
The administration argues that, leaving aside the student loan effects, the primary reason the deficit rose from fiscal year 2022 to fiscal year 2023 was a sharp decline in revenues, which fell from 19.3% of GDP to 16.5%. “This drop in revenues was the primary driver of the increase in the deficit as a share of GDP,” the Treasury Department said in its statement. “By contrast, non-interest spending did not meaningfully contribute to the increase in the deficit as a share of GDP.”
Non-interest spending rose only slightly as a share of the economy, climbing from 21.4% to 21.6% of GDP, the administration says, adding that spending on programs besides Social Security, Medicare and Medicaid actually fell slightly.
The bottom line: The deficit effectively doubled from 2022 to 2023. While Republicans keep arguing that the government has a spending problem, the White House says that we have a revenue problem — a problem that was only temporarily masked in 2022 by stock market gains that led to historically high capital gains tax revenues. The administration on Friday argued that the declining federal receipts highlight the importance of President Joe Biden’s enacted and proposed tax changes and his plan to cut the deficit by $2.5 trillion over the next 10 years.
