The U.S. budget deficit reached $1.8 trillion in the most recent fiscal year, driven by rising interest payments and increased spending on programs for older Americans. This growing gap between government expenditures and tax revenue presents a persistent challenge for federal finances.
The deficit figures come as both Republican presidential nominee Donald Trump and Democratic candidate Kamala Harris propose new tax and spending plans that could add trillions to the deficit over the next decade. Whoever wins the 2024 election will face immediate decisions about federal spending, the national debt limit, and expiring tax cuts. These choices will be influenced by a balance between long-term fiscal projections and the public’s desire for continued federal benefits and low taxes.
According to the Congressional Budget Office (CBO), the government collected $4.92 trillion in revenue while spending $6.75 trillion in the fiscal year ending September 30, resulting in a deficit of $1.83 trillion. Although the official 2023 deficit was reported at $1.7 trillion, it was larger in reality due to adjustments involving the now-blocked student loan forgiveness plan, which temporarily skewed spending data.
Federal entitlement programs like Social Security and Medicare accounted for a 6% spending increase compared to 2023. Interest payments on the national debt surged 34%, amounting to $950 billion, surpassing military spending for the first time due to rising interest rates. Meanwhile, revenue grew by 11%, partly because of delayed tax payments from natural disasters in California and the halting of payments for a pandemic-era tax credit.
White House spokesperson Jeremy Edwards emphasized the need for further deficit reduction, stating that President Biden is focused on making the wealthy and large corporations pay more taxes while cutting wasteful spending on special interests like Big Pharma.
While the U.S. has run larger deficits in the past—during wartime or economic crises—the current deficit is occurring amid low unemployment and steady economic growth. Economists warn that while this isn’t yet a crisis, the country’s fiscal outlook has become riskier.
Trump and Harris’s tax and spending proposals could widen the deficit further. Trump has proposed $6.5 trillion in tax cuts, while Harris’s plan includes $4.2 trillion in cuts. Trump’s fiscal strategy would likely increase the deficit by $7.5 trillion over the next decade, according to the Committee for a Responsible Federal Budget (CRFB). His proposals include eliminating taxes on tips, overtime pay, and Social Security benefits, but his increased military and deportation programs would add to government spending.
Harris, on the other hand, plans to expand Medicare to cover long-term care and supports higher taxes on top earners and corporations to offset new spending initiatives. Despite these measures, the CRFB estimates her proposals would still add $3.5 trillion to the deficit.
Both candidates have pledged not to cut benefits for Social Security and Medicare, two of the largest drivers of federal spending. However, experts like Romina Boccia from the Cato Institute argue that these programs need reform to address the root cause of rising spending.
The fiscal debate will heat up as many of Trump’s 2017 tax cuts are set to expire next year. Progressives view this as an opportunity to overhaul the tax code and implement new revenue streams to pay for any extensions. Harris has called for extending tax cuts for households earning less than $400,000 while proposing new programs such as an expanded child tax credit and affordable housing initiatives.
Implementing these changes will prove challenging, especially if Harris wins the presidency without Democratic control of both the House and Senate. Paying for these proposals will likely require tough negotiations and significant changes to the current tax structure, with Republicans opposing tax hikes on corporations and high-income earners, warning that such moves could stifle economic growth.
