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Draining the U.S. Treasury

Each month, the U.S. Treasury Department publishes a report on the federal budget. The Treasury’s report shows the government’s revenues and expenses. The latest report, which was released last week, is notable because it covers the latest fiscal year (Oct. 1, 2017 to Sept. 30, 2018) and provides insights into the effects of the tax bill (Tax Cuts and Jobs Act) that was passed in December 2017. According to the Treasury Department, in fiscal year (FY) 2018, the nation’s budget deficit was $779 billion (see chart), an increase of 17 percent compared with the FY2017 deficit of $665.8 billion. That’s a lot of red ink, especially at a time when the economy is running at full steam!

Corporations and households have benefitted from the tax cuts; however, the tax cuts have not generated enough economic growth to pay for themselves as promised by Treasury Secretary Steven Mnuchin. Similar hollow promises were made to justify tax cuts in the 1980s and 2000s, but, like those previous tax cuts, the current cuts have simply drained the U.S. Treasury. As shown in the charts, in FY2018, the Treasury recorded its largest deficit in six years. The 2018 deficit was actually larger than recorded by the Treasury Department’s report because some of the nation’s 2018 expenses were paid in 2017. According to the Treasury Department, “Outlays for Military active duty and retirement, Veterans’ benefits, Supplemental Security Income, and Medicare payments to Health Maintenance Organizations and prescription drug plans accelerated into September, because October 1, 2017 [the first day of fiscal year 2018] … fell on a non-business day.”

Overall tax revenue increased from $3.314 trillion in (FY) 2017 to $3.328 trillion in FY 2018, an increase of 0.4 percent. However, after you factor in a 2.4 percent increase in inflation, real (inflation-adjusted) revenues suffered a decline. A drop in corporate income taxes contributed the most tothe decline. Corporate income taxes fell from $297 billion in FY 2017 to $205 billion in FY 2018, a huge drop of 31.3 percent. In contrast, individual income taxes jumped from $1.587 trillion in FY 2017 to $1.683 trillion in FY 2018, an increase of 6.0 percent as increased employment boosted tax collections from individuals.

Overall spending increased from $3.980 trillion in FY 2017 to $4.107 trillion in FY 2018, an increase of 3.1 percent. The largest increases in spending were for: interest on the national debt (+$64.6 billion); Social Security Administration (+$39.1 billion); Department of Defense (+$31.8 billion); and Department of Homeland Security (+$17.9 billion. The largest cut in spending was in the Department of Education (-$48.0 billion).

As noted in the Treasury’s report, the Congressional Budget Office expects the budget deficit to rise to $1.085 trillion dollars in FY2019, an increase of 39 percent over FY2018. Total spending is expected to rise to $4.510 trillion, and total revenues are expected to rise to $3.424 trillion.

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Swamp things

Although the phrase “drain the swamp” has never been clearly defined, inhabitants of the political swamp in Washington are clearly recognizable. Politicians who attempt to buy our votes with tax cuts while overseeing ballooning budget deficits are clearly swamp things. Also, rather than being drained, the swamp continues to grow. According to the Center for Responsive Politics, which touts itself as a source of “unbiased information about money’s role in politics and policy,” from 2016 to 2017, the number of active lobbyists involved in lobbying activities related to the federal government increased from 11,178 to 11,545, and their spending on lobbying activities increased from $3.16 billion to $3.37

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Unsustainable increases in deficit

With the nation’s income/gross domestic product increasing at single-digits rates in the range of 3 to 5 percent, double-digit increases in the nation’s budget deficits are unsustainable. It’s high time for our representatives in Washington to reign in the nation’s budget deficits, which might require them to show the courage to raise taxes rather than lower them. Otherwise, the short-term economic gains we have enjoyed over the last couple years will likely lead to long-term economic pains of rising budget deficits and interest payments and of cuts to Social Security and Medicare.