Federal Deficit Jumps 17 Percent As Tax Cuts Eat Into Government Revenue

Trump Wants Federal Agencies to Cut Spending by 5%                 

     

     KEVIN LAMARQUE  Reuters

Trump Wants Federal Agencies to Cut Spending by 5% KEVIN LAMARQUE Reuters

The only other period when the federal government has run deficits above US$1 trillion was for four years from 2009 through 2011.

"President Trump prioritized making a significant investment in America's military after years of reductions in military spending undermined our preparedness and national security", Treasury Secretary Steven Mnuchin said in a statement.

The Trump administration announced that the deficit had risen by 17% in the 2018 fiscal year to $779 billion.

The U.S. government closed the 2018 fiscal year $779 billion in the red, its highest deficit in six years, as Republican-led tax cuts pinched revenues and expenses rose on a growing national debt, according to data released on Monday by the Treasury Department.

It was the biggest deficit since 2012, and $113 billion more than the figure a year ago. In March, Trump signed a $1.3 trillion spending bill into law.

Economists generally view the corporate and individual tax cuts passed by the Republican-controlled U.S. Congress late previous year and an increase in government spending agreed in early February as likely to balloon the nation's deficit.

Some Fed officials have warned that rising USA deficits could hamper any US fiscal response to a downturn.

The current spike in the deficit at a time of strong economic growth and low unemployment represents a break with that historical pattern.

The deficit worsened because tax revenues are not keeping pace with government spending.

However, despite the strong economy, federal revenue only rose by $14 billion.

"America's booming economy will create increased government revenues - an important step toward long-term fiscal sustainability", Trump's budget director, Mick Mulvaney, said in a statement accompanying the Treasury report.

It projected the 2019 deficit will hit $1.09 trillion and will total $1.08 trillion in 2020 and $1.01 trillion in 2021 before once again dipping slightly below the $1 trillion mark in 2021 with a projected deficit of $952 billion.

That's when the Obama administration was using tax cuts and increased spending, along with support for the banking system, to combat the 2008 financial crisis and Great Recession, the worst economic downturn since the Great Depression of the 1930s.

Top White House economic adviser Larry Kudlow has suggested in recent weeks the administration may pursue spending cuts in social programmes - something Democrats say will mean reducing the safety net for health care and retirement for the poor and elderly.

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