Why Is The US Budget Deficit Growing? Government Spending Outstripping Revenue

The 2017 tax cuts have not panned out the way Republicans projected when they slashed corporate and income taxes with the U.S. budget deficit wideneing in November to $209 billion and the national debt topping $23 trillion.

For the first two months of the fiscal year, which began Oct. 1, the deficit grew to $343 billion. The national debt clock showed the U.S. owed more than $23 trillion as of Thursday.

When Republicans enacted the 2017 tax cuts, they projected economic expansion at 3% or higher, which would have more than covered any revenue loss from the reduction in rates. Instead, with the current expansion, which began at the end of the Great Recession, in its 11th year, gross domestic product is increasing in the 2% range this year and is expected to slow further next year.

“What they didn’t count on was that the benefits of any tax cuts would almost surely fizzle quickly because any attempt at stimulus after years of an economic expansion will have little or no impact,” said Steven Jon Kaplan, CEO of True Contrarian Investments LLC. “Any stimulus tends to be most effective at the depths of a recession.

“Instead of a growing economy we have flat growth with soaring deficits,” he said in response to an inquiry from International Business Times.

Riley Adams, a senior financial analyst and certified public accountant at Google, said part of the problem is the tax law itself.

“In effect, tax reform created just as many loopholes as it claimed to close, shifting a significant amount of the new revenue shortfall onto the public in the form of higher deficits and government borrowing,” Adams said.

“Tax reform also made it easier for wealthy Americans to shelter their already considerable income from taxes … by largely defanging the alternative minimum tax, more than doubling the level of wealth excluded from the estate tax, lowering the top 39.6% tax rate to 37%, which can be reduced even further if these wealthy Americans act as business owners who can claim the 20% qualified business income deduction.

“These wealthy individuals also largely won from the reduction in the corporate income tax rate from 35% to 21%, whereby companies can produce larger profits, resulting in either higher stock prices for their portfolios, or higher dividend payouts.”

The government took in $225 billion in November: $106 billion from income taxes, $97 billion from social insurance and retirement, $8 billion in excise taxes, $7 billion in customs duties, $6 billion in miscellaneous receipts, $1 billion in estate and gift taxes and $500 million in corporate income taxes.

At the same time, it spent $434 billion: $89 billion on Social Security, $83 billion on Medicare, $63 billion on defense, $50 billion on health, $47 billion on income security, $32 billion on interest on the debt, $27 billion on veterans benefits, $9 billion on agriculture, $8 billion on transportation and $26 billion on other expenses.

For the first two months of fiscal 2020, the government took in $471 billion and spent $814 billion.