NEW A vastly improved search engine helps you find the latest on companies, business leaders, and news more easily.<doc-sep>Stan Collender Opinion contributor It wasn’t said directly, of course, but the U.S. Treasury officially reported something Monday that, depending on your political party of choice, you’ve either long suspected would happen or refused to admit was possible: Last year’s big tax cut bill significantly increased the federal budget deficit. According to the Monthly Treasury Statement for fiscal 2018, the year that just ended Sept. 30, the deficit was $779 billion — a $113 billion, 17 percent increase over the$666 billion deficit recorded last year. This was the biggest one-year increase in the deficit since 2009, when the Great Recession wreaked havoc on federal finances. At 3.9 percent, it was the largest deficit compared with gross domestic product since 2013. The bottom line 2018 deficit number is significant because it occurred during good economic times, when the federal deficit typically falls rather than spikes. But that's not the most important story. A simple analysis of what Treasury reported shows that virtually the entire deficit increase was because the tax cut enacted in December reduced revenues substantially. GOP tax cuts are expanding the deficit Treasury said revenues grew from 2017 to 2018 by slightly less than $14 billion. Given the federal government’s overall $113 billion deficit increase, you might assume that the deficit rose because spending was $127 billion higher. Overall federal outlays did increase by $127 billion compared with what was actually spent in 2017, but that’s the wrong comparison. The right comparison is the total tax revenue the government would have collected under the old tax law versus the new one. The Congressional Budget Office estimated fiscal 2018 revenue would be $3.5 trillion under the laws that were in place before President Donald Trump signed the GOP tax cut bill. The actual amount Treasury reported Monday was $202 billion less. That $202 billion would have more than covered the $127 billion in extra spending in 2018. This comparison, to tax revenues that were expected had the laws stayed the same, unambiguously shows that virtually all of the federal deficit increase that occurred from 2017 to 2018 was because of the new cuts in corporate and individual taxes. Had the tax changes not been enacted, the federal deficit in 2018 would have dropped to well below $600 billion, rather than rising to close to $800 billion. More:Trump trillion-dollar-plus deficits are putting America on a path to fiscal ruin Who's really to thank for booming economy: Donald Trump or Barack Obama? Bust the budget then vote to balance it: GOP's shameless bid to shred safety net Four things about this are most troubling. First, both Treasury and CBO expect the deficit to keep spiking. Compared with the CBO pre-tax bill baseline, 2019 revenues will be $263 billion below what they would have been if rates had stayed the same. Treasury’s projected 2019 deficit would be just above $800 billion rather than close to $1.1 trillion. Second, not content with how much they’ve already increased the deficit, Congress and the White House are seriously considering passing another big tax cut during the lame duck session after the midterms. That will increase it even more. The House passed this bill just before it recessed for the midterm elections, and the scuttlebutt I hear from budget insiders is that Republican leaders are seriously considering misusing the congressional budget process so no one may filibuster the next deficit increase. In its current form, this new tax bill will reduce revenues by another $630 billion over the next 10 years. Third, unlike the recession-caused trillion dollar federal deficits of the Obama years that fell precipitously when the economy improved, these deficits are the result of permanent changes in federal revenues caused by the tax law. Not only does this put the constantly promised-but-never-achieved goal of balancing the federal budget in 10 years out of reach, it makes even the projection of a balanced budget into the political equivalent of a practical joke or a hoax. And fourth, Treasury Secretary Steven Mnuchin and Budget Director Mick Mulvaney are either in denial about these numbers or think no one notices when they say high spending rather than low revenue is why the deficit is rising so precipitously. Mnuchin and Mulvaney should be ashamed Last week, Mnuchin said it was the Democrats’ demand for more spending on health care and education that was the sole reason the deficit was increasing. Shortly after Treasury released its report, Mulvaney said the deficit was due to “irresponsible and unnecessary spending.” He didn’t mention the tax cuts at all. Mnuchin and Mulvaney should both be embarrassed by these obvious attempts at budget misdirection, but Mnuchin should be especially ashamed. It is Treasury, the department he leads with a staff that reports to him, that has exposed the tax law as the real reason the federal deficit is increasing so steeply. Stan Collender teaches federal budgeting at the McCourt School of Public Policy at Georgetown University and is the founder of thebudgetguy.blog. Follow him on Twitter: @thebudgetguy<doc-sep>The $779 billion figure is the largest deficit since the height of the Great Recession in 2012, when the budget shortfall amounted to $1.089 trillion. | Andrew Harnik/AP Photo Money Treasury: Budget deficit swells under Trump to largest in 6 years President Donald Trump’s first full fiscal year in office has produced the nation’s largest budget shortfall in six years, according to Treasury Department data released Monday. The U.S. deficit widened in fiscal 2018 to $779 billion, which is $113 billion more than the previous year, according to the Treasury’s widely anticipated yearly report. Budget chief Mick Mulvaney, the White House’s best known deficit hawk, blamed the rising tide of red ink on Congress’ appetite for more spending this year — but he ignored the costly package of tax breaks that passed exclusively with Republican votes this year. The Office of Management and Budget director argued that the supercharged economy would eventually bring in enough government revenue to make up the difference, without providing specific details. “The president is very much aware of the realities presented by our national debt,” Mulvaney said, pointing fingers at Congress’ “continual unwillingness to restrain spending,” including lawmakers’ rejection of the administration's first major attempt at spending cuts this summer. Morning Tax Sign up for our tax policy newsletter and stay informed — weekday mornings, in your inbox. Email Sign Up By signing up you agree to receive email newsletters or updates from POLITICO and you agree to our privacy policy and terms of service. You can unsubscribe at any time and you can contact us here. This sign-up form is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. “America’s booming economy will create increased government revenues — an important step toward long-term fiscal sustainability. But this fiscal picture is a blunt warning to Congress of the dire consequences of irresponsible and unnecessary spending,” Mulvaney said. The last 12 months on Capitol Hill have been defined by deficit-financed spending and tax cuts, including the GOP’s signature tax bill and this spring’s $300 billion budget deal. Lawmakers also approved $130 billion in disaster aid without offsets. White House advisers, including Mulvaney, are now hinting that the fiscal year that began Oct. 1 would be guided by a much stricter spending mentality. Trump's chief economist, Kevin Hassett, said last week that the White House plans to take a “much more aggressive stance” on the budget this year, acknowledging that the deficit is “absolutely higher than anyone would like.” Trump’s next budget request, likely to be released in February, is expected to feature far more fiscal austerity than the previous year’s proposal, which was largely focused on a buildup of the military. “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. Economists have noted that the mounting annual deficits — expected to exceed $1 trillion as soon as next year — are unusual in a time of robust economist growth. This year, GDP growth surged 4.2 percent in the second quarter, marking its highest growth rate since mid-2014. Still, the nation’s annual deficit is the largest since the height of the Great Recession in 2012. At that time, the budget shortfall was $1.089 trillion.<doc-sep>(CNN) — There are two things that can expand a deficit: Decreased tax revenues and increased spending. Right now, we have both. The federal deficit rose 17% in 2018, to $779 billion — the highest since 2012, thanks to a bigger military budget, rising interest costs, and a giant tax cut. But Republicans, who have historically decried fiscal irresponsibility, only want to talk about spending. “It’s very disturbing,” said Senate Majority Leader Mitch McConnell on Bloomberg TV on Tuesday, on the newly released deficit numbers. “And it’s driven by the three big entitlement programs that are very popular, Medicare, Social Security, and Medicaid.” Is that true? Let’s look at the Treasury tables. In fiscal year 2018, which ended on September 30, overall spending increased by 3%, or $127 billion. The largest spending increases came from interest on the debt ($65 billion) and the Social Security Administration ($39 billion). Then came defense spending, at $32 billion — increases President Donald Trump and other Republicans demanded in budget negotiations. Medicare and Medicaid — programs Trump has promised not to touch — rose by $17 billion total. What about the tax side? Budget receipts were basically flat overall. Individual non-withheld and self-employment taxes rose by $89 billion, as they should in a good economy when more people are working. Most of that increase came in April, when taxpayers were filing returns for 2017 — before the Trump tax cuts took effect. Congress’ Joint Tax Committee has forecast the overall revenue impact of the individual tax cuts to be much larger in 2019, knocking collections down by $189 billion. Corporate taxes only constitute about 9% of the government’s $3.3 trillion in 2018 collections, but they plunged by $93 billion from last year. According to the Congressional Budget Office, about half of that drop came after June, when companies began paying estimated taxes for the 2018 tax year, at the lower post-tax-cut rate. If there had been no tax cut, collections would have been higher. Translation: Tax cuts played a key role in boosting the deficit in 2018, and are expected to contribute to deficits in the coming years, contrary to claims from the White House and Congressional Republicans that they would “pay for themselves.” Treasury Secretary Steven Mnuchin has said that lower tax rates will boost collections when businesses have had enough time to reinvest their savings in growth, but that’s not what’s happened after previous tax cuts, and it’s not what nonpartisan analysts like the Tax Policy Center think will happen after this one. But here’s the more important question: Does any of this actually matter? As a percentage of gross domestic product, the deficit in 2018 rose to 3.9% from 3.5% last year. That’s higher than the 3.2% average over the last 40 years, but it’s nowhere near the 9.8% level reached in 2009, at the depth of the financial crisis, or even the 4.5% during the recession of the early 1990s. And although interest rate payments of $522 billion seem eye-popping, as a percentage of GDP they’re also far below levels paid in the 1980s and 1990s, when fiscal austerity first became a Republican political cause. There’s no guarantee, however, that interest rates will stay as low as they have been. The rate on the 3-month Treasury bill has risen from zero three years ago to 2.27% today, making the debt more expensive to service, and Federal Reserve Chair Jay Powell has said he’s likely to continue hiking on that upward path. Also, elevated deficits are highly unusual in heady economic times such as these, when the federal government could be curbing the growth of the debt rather than accelerating it. That’s what much of the rest of the developed world is doing: According to an analysis by the Organization for Economic Cooperation and Development, countries in the euro area are projected to decrease their public debt between 2017 and 2019 as a percentage of GDP by about as much as the United States is projected to increase it. It also matters what the government is going into debt to do, and what kind of returns it will generate. Lower-income people, for example, are more likely to spend any extra disposable income they might get from a tax cut than rich people, who are probably already meeting all their needs. The Trump tax cuts disproportionately benefit higher-income people, so they are not well targeted to maximize economic growth. Infrastructure spending — once a favorite Trump objective — would also be a logical reason to rack up debt, since repairing and building out America’s roads, train lines, sewer systems, and broadband connections would improve productivity in a way that no other fiscal policy could. But that’s not why U.S. deficits are rising now. They’re rising because of tax cuts, and yes, because of an aging population that’s going to need to depend on Social Security and Medicare when they retire.<doc-sep>
The U.S. budget deficit reached its highest level in six years, higher than any point in President Barack Obama's second term, the Trump administration announced Monday. Increased spending in 2018 bumped the deficit up 17 percent to $779 billion in fiscal year 2018, largely due to an increase in spending and a decrease in corporate tax revenue because of the Republican tax cuts late last year. The deficit is now on track to surpass $1 trillion before 2020. The Treasury Department said Monday that the increase was due to domestic and military spending, not because of a permanent cut in corporate tax rates from 35 to 21 percent. "President Trump prioritized making a significant investment in America's military after years of reductions in military spending undermined our preparedness and national security," said Treasury Secretary Steven Mnuchin in a statement. "Going forward, the president's economic policies that have stimulated strong economic growth, combined with proposals to cut wasteful spending, will lead America toward a sustainable financial path." Still, an analysis of spending and revenue show that federal revenue rose by only 0.4 percent this year, a significant slowdown from last year's 1.5 percent. In fiscal year 2018, tax receipts on corporate income fell to $205 billion from $297 billion last year, but were ultimately buoyed by gains from excise taxes, estate and gift taxes, customs duties and miscellaneous taxes. The Trump administration campaigned on fiscal responsibility, and a number of Republicans, including House Speaker Paul Ryan have branded themselves as fiscal hawks, but current policy initiatives don't jibe with that label. "Going forward, President Trump and this Administration will continue to work with Congress to make the difficult choices needed to bring fiscal restraint, which, when matched with increasing revenue, will reduce our deficit," said Office of Management and Budget Director Mick Mulvaney. Michael Peterson, CEO of the nonpartisan Peter G. Peterson Foundation said that these deficits during an economic boom are unprecedented. "This is a uniquely imbalanced time in our fiscal history, with deficits rising despite a growing economy and low unemployment," he explained in a statement. "In fact, the U.S. is the only developed country in the world whose debt-to-GDP ratio is growing. This is a reflection of just how irresponsible our budget policies have become." A new Pew Research Center poll, meanwhile, found that the majority of Democrats and Republicans believe that the federal budget deficit is a very big problem in the country today. The survey, released Monday, showed about 56 percent of Democrats and 61 percent of Republicans prioritized a balanced budget, one of the few issues the left and right see eye-to-eye on. "Deficits are rising—and fast. In as soon as a year, they will top $1 trillion and never come back down unless Congress acts. This year's deficit amounts to $6,200 per household and is more than we spend each year on Medicare or defense," said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. MacGuineas also expressed concern that interest payments on debts will soon start to crowd out spending on other Federal programs. "Interest on the debt rose by $62 billion over the previous year to $325 billion, which amounts to twice as much as we spend on the Departments of Transportation and Homeland Security combined," she said. "Under current projections, annual interest payments on the debt could top $1 trillion by 2030."