U.S. Deficit Fell to $1.4 Trillion in 2023
WASHINGTON — The federal budget deficit fell to $1.4 trillion for the 2022 calendar year, down from $2.6 trillion a year ago, as pandemic emergency spending slowed, the economy reopened and tax revenue rose, according to the Treasury Department.
While the annual gap between what the nation spends and what it takes in narrowed, the monthly deficit for December 2022 widened compared with a year ago, suggesting that the deficit will most likely grow again in the year to come. The federal government recorded an $85 billion shortfall last month, up from a $21 billion deficit in December 2021.
The figures released on Thursday come at a moment of heightened attention on the nation’s finances, with Republicans, who now control the House, pledging to push for deep spending cuts and slash the national debt. Despite the smaller annual shortfall, America’s long-term fiscal picture has darkened somewhat in the last year. The national debt topped $31 trillion for the first time in 2022 and interest rates are rising, increasing the amount of money the United States must pay to investors who buy its debt.
Net interest costs have risen by 41 percent over the past calendar year, the data showed. The Peterson Foundation, which advocates debt reduction, reported on Thursday that the jump was larger than the biggest increase in interest costs in any single fiscal year, dating back to 1962.
Republicans have said repeatedly that they will make balancing the federal budget over the course of a decade and reducing the national debt a central focus of their economic agenda this year. They say large deficits under President Biden have contributed to high inflation, which hit a 40-year peak last summer but has eased in recent months. The Labor Department reported on Thursday that prices receded slightly in December.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Speaker Kevin McCarthy said this week that Republicans would use their leverage, including the need to raise the country’s debt limit this year, to corral spending.
“One of the greatest threats we have to this nation is our debt,” Mr. McCarthy said on Fox News. “It makes us weak in every place that we can.”
But Republicans have also prioritized policies this month that would add to deficits. The House passed legislation this week that would rescind much of the $80 billion that was allocated to the Internal Revenue Service last year to beef up its enforcement capacity. The nonpartisan Congressional Budget Office said that the Republican bill to cut the money would actually increase the deficit by $114 billion through 2032.
Mr. Biden said on Thursday that he would veto such legislation and assailed Republicans for backing a measure that would add to the deficit and make it easier for the wealthy to cheat on their taxes by cutting the I.R.S. enforcement budget. He has repeatedly said he will not negotiate with Republicans on the debt ceiling and will insist that lawmakers raise the limit with no strings attached.
“I was disappointed that the very first bill the Republicans in the House of Representatives passed would help wealthy people and big corporations cheat on their taxes at the expense of ordinary, middle-class taxpayers,” Mr. Biden told reporters at the end of remarks about inflation and the economy. “And it would add $114 billion to the deficit. Their very first bill.”
The president and his aides have said he is open to working with Republicans to reduce the deficit by raising taxes on high earners and corporations — proposals that Republican lawmakers have roundly rejected.
Budget watchdog groups that advocate fiscal restraint have called on lawmakers to enact policies that will stabilize the debt.
“We should not be borrowing $4 billion a day, an apparent debt addiction that is harmful to the economy and the budget,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. “We hear a lot of talk about fiscal responsibility, but very little action.”
Ms. MacGuineas and other fiscal hawks have also attacked House Republicans over their debt limit threats, saying that they risk economic calamity — and that Republicans’ vow to balance the budget over 10 years without raising taxes is both politically unfeasible and economically inadvisable.
Mr. Biden has claimed credit for the decline in the budget deficit last year, but it was in large part the result of Congress forgoing another round of pandemic stimulus spending like the $1.9 trillion economic aid package Mr. Biden signed early in 2021. The president has contended that such spending, and other efforts by his administration to fuel economic growth in the recovery from pandemic recession, contributed to stronger-than-expected tax receipts in 2022, helping to lower the deficit.
But administration officials have also predicted that the deficit is set to rise again this year. In an August update to the president’s budget proposal for the 2023 fiscal year, White House economists predicted that the deficit would grow by about 30 percent from the 2022 to 2023 fiscal years. They forecast further increases in the deficit in each of the two years after that.