The U.S. budget deficit rose to $211 billion in August, nearly double the deficit gap from one year ago, the Congressional Budget Office estimated late Monday, which however was largely due to a calendar quirk: adjusted for shifts in payments, which would have occurred on a weekend, the deficit would have grown by 19%.
Excluding the timing shifts, outlays grew 8%, as the net interest on public debt jumped 25%, defense spending jumped 10%, outlays for Social Security grew 5%, and outlays for Medicare benefits rose 7%. Tax receipts fell by 3%, with corporate taxes dropping by $5 billion, while revenue from income and payroll taxes rose marginally.
Revenue from individual and payroll taxes was up some $105 billion, or 4 percent, as increasing wages, mostly due to more people having jobs, offset a lower withholding rate. while corporate taxes fell $71 billion, or 30% largely due to Trump tax reform, which lowered corporate tax rates as well as the expanded ability to immediately deduct the full value of equipment purchases.
Spending on Social Security and Medicare have climbed 4% as more baby boomers retire, outlays on net interest on the debt have jumped 19% in part due to a higher rate of inflation triggering more payments to inflation-protected securities holders, and defense spending has jumped 6%.
Still, on a cumulative basis, the budget deficit is blowing out in a big way, and in the first 11 months of the fiscal year, the deficit was $895 billion, $222 billion or 39% more than the previous year. This is largely due to outlays which have climbed 7% while revenue rose a mere 1%.
Commenting on the soaring deficit, White House chief economic adviser Kevin Hassett, told reporters on Monday that corporate tax cuts, but not the whole package, would pay for themselves with higher growth.
“I think that the notion that the corporate tax side has about paid for itself is clearly in the data,” he said. “On the individual side, there was about a trillion-dollar cost. About $700 billion of that was a refundable child credit that got expanded at the last minute to get the votes they needed to pass it.”
While other administration officials have made even more bombastic claims that the entire tax cut would pay for itself, including Treasury Sec. Steven Mnuchin and Gary Cohn, this has yet to manifest itself in the numbers.
But what is most ominous, at least to budget hawks, is that the CBO now says the deficit will approach $1 trillion by the end of this fiscal year or one year sooner than disclosed in the CBO's most recent forecast ; in April the agency didn’t expect the deficit to reach $1 trillion until 2020.
Then again, over the long run none of this matters...