America’s Surging Deficit Spending

The U.S. government’s budget deficit in 2024 will be 27% larger than the Congressional Budget Office predicted just four months ago.

In February 2024, the CBO projected that spending would exceed revenues by $1.507 trillion during its 2024 fiscal year. Four months later, the CBO updated its deficit projection, increasing it by $408 billion. The CBO now estimates the U.S. government will rack up $1.915 trillion worth of red ink by the time the federal government’s 2024 fiscal year ends on September 30.

Reuters summarizes the additional spending that is blowing up the budget deficit:

The CBO said in an update to its budget outlook, opens new tab that higher outlays for student loan relief, Medicaid healthcare for the poor, higher Federal Deposit Insurance Corp costs to resolve bank failures and U.S. aid to Ukraine and Israel make up the bulk of a $408 billion increase in this year’s projected deficit since February, when it forecast a $1.507 trillion deficit.

The CBO anticipates the Biden administration’s surge of spending in 2024 will bleed into 2025:

If realized, the forecast for the fiscal year ended Sept. 30 would mean a second consecutive substantial deficit increase for U.S. President Joe Biden after deficits fell substantially in 2022 as COVID spending subsided.

CBO forecast that the deficit would climb further in fiscal 2025 to $1.938 trillion.

The CBO describes four factors accounting for 80% of the increase in the U.S. government’s deficit spending:

About 80 percent of the increase in the projected deficit in 2024 is driven by four factors that all boost projected outlays.

  • A $145 billion increase in projected outlays for student loans stems mostly from revisions that the Administration made to the estimated subsidy costs of previously issued loans and from the Administration’s proposed rule to reduce many borrowers’ balances on student loans.
  • Projected outlays for deposit insurance have increased by about $70 billion because the Federal Deposit Insurance Corporation (FDIC) is not recovering payments it made when resolving bank failures in 2023 and 2024 as quickly as CBO previously anticipated. (In CBO’s projections, that increase is almost entirely offset by deficit reductions in future years as those payments are recovered.)
  • Newly enacted legislation increased projected discretionary outlays by $60 billion.
  • Projected outlays for Medicaid have increased by about $50 billion, mainly because actual outlays thus far in 2024 have been higher than expected.

President Biden’s irresponsible efforts to forgive student loan debt account for 35% of the increase. Increased military expenditures directed toward Ukraine, Israel, and Taiwan account for 23%. Bailing out the FDIC so it can bail out failing U.S. banks accounts for 17%, and the higher spending on Medicaid accounts for 12% of the newly projected increase in 2024’s budget deficit.

Much of the remaining increase in deficit spending can be chalked up to the rising cost of the national debt, which will have enduring effects over the next ten years covered by the CBO’s updated projections. Here’s Reuters again:

A strengthened economic outlook reduced the long-term deficits by $600 billion over 10 years in the latest forecast, but this was also offset by a $1.1 trillion deficit increase due to technical revisions, including upward revisions to outlays for debt interest and healthcare costs. CBO now expects net interest costs to reach $1.7 trillion in fiscal 2034, up from $658 billion in 2023.

Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for deficit reduction, said report shows that the U.S. debt challenge was getting worse.

“The harmful effects of higher interest rates fueling higher interest costs on a huge existing debt load are continuing, and leading to additional borrowing,” Peterson said in a statement. “It’s the definition of unsustainable.”

Unlike its revenues, the U.S. government has full control over how much it spends. As the CBO’s updated projections confirm, the unsustainable part of the U.S. government’s worsening fiscal situation is its excessive spending.

Craig Eyermann is a Research Fellow at the Independent Institute.
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