Federal Tax Revenue Hits All-Time High, So Why is the Deficit Growing?
Should Congress reduce spending to tame the deficit?
The federal government’s collection of tax revenue hit an all-time high with receipts exceeding $3.4 trillion in fiscal year 2019, which ended September 30th. Despite the increased revenue, however, the federal budget deficit increased to $984 billion according to a Congressional Budget Office (CBO) report released Thursday.
Here’s a look at federal tax revenue, spending, and the net deficit over the last six fiscal years:
- FY2014: $3.021 trillion in revenue and $3.506 trillion in spending yielded a $485 billion deficit (2.8% of U.S. gross domestic product or GDP).
- FY2015: $3.250 trillion in revenue and $3.692 trillion in spending yielded a $442 billion deficit (2.4% of GDP).
- FY2016: $3.268 trillion in revenue and $3.853 trillion in spending yielded a $585 billion deficit (3.2% of GDP).
- FY2017: $3.316 trillion in revenue and $3.982 trillion in spending yielded a $665 billion deficit (3.5% of GDP).
- FY2018: $3.329 trillion in revenue and $4.108 trillion in spending yielded a $779 billion deficit (3.8% of GDP). (This is the first fiscal year in which the lower personal and corporate income tax rates under the Tax Cuts and Jobs Act were in effect.)
- FY2019: $3.462 trillion in revenue and $4.447 trillion in spending yielded a $984 billion deficit (4.6% of GDP).
When comparing the last two fiscal years, the data shows that tax revenues increased by 4% from FY2018 to FY2019, while federal spending increased by 8%.
Why is spending increasing?
Federal spending comes in two categories ― discretionary spending that Congress approves for a given fiscal year and mandatory spending on things like Social Security, Medicare, and debt service. While both discretionary spending and mandatory spending are increasing, the CBO notes that mandatory spending has grown at a faster rate and will continue to do so.
A major factor in the accelerated spending on mandatory programs is the aging of America’s population, as members of the Baby Boomer generation age into Medicare and Social Security For instance, in FY2018 the federal government’s spending on everything but interest on the national debt came to about $3.8 trillion, and about 40% of that spending went toward programs serving Americans over the age of 65. The CBO projects the proportion of federal spending on people over 65 will rise to 50% in 2029.
On the discretionary side, the enactment of the Bipartisan Budget Act of 2019 raised spending caps for both defense and domestic discretionary programs to a combined $1.371 trillion in FY2020 ($739 billion defense plus $629 billion non-defense) and $1.375 trillion in FY2021 ($740.5 billion defense plus $634.5 billion non-defense).
Persistent budget deficits have increased the national debt above $23 trillion, and the cost of servicing that debt has been rising. The federal government spent about $383 billion in FY2019 to service the national debt and avoid default, but by 2029 the CBO projects that figure will rise to $928 billion (an amount larger than the current defense budget).
— Eric Revell
(Photo Credit: iStock.com / mj0007)
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