A deficit of 1.695 trillion. dollars for fiscal year 2023 the US government announced, which was up 23% from the previous year as revenues fell and spending on Social Security, Medicare and the highest interest costs on the federal debt rose.
It marks a major return to swelling deficits after successive reductions during the first two years of President Joe Biden’s term. For September, the last month of the fiscal year, the deficit fell to $171 billion from $430 billion in September 2022.
The rating agencies
The rating agency Fitch in its assessment in August withdrew the third A from the assessment of the American economy which it lowered to AA+.
In its announcement it said at the time that “the downgrade of the United States’ rating reflects the expected fiscal deterioration over the next three years, the high and increasing burden of the general government’s debt and the erosion of governance,” noting that “repeated political confrontations over the debt limit and last-minute resolutions have eroded confidence in fiscal management.”
A warning bell was also sounded by Moody’s, which focused more on the political conflict over financing and the possible suspension of the government. “Fiscal policymaking is less robust in the US than in many Aaa-rated peers, and another shutdown would be further evidence of that weakness,” the house, which has so far rated the US government ‘AAA’, said in a statement. with a stable outlook, the highest credit rating it assigns to borrowers.
The battle in Congress
Joe Biden is asking Congress for $100 billion in new foreign aid and security spending, of which $60 billion will go to Ukraine and $14 billion to Israel, along with security funding the American border and the Indo-Pacific region.
The large deficit, which exceeded all pre-pandemic deficits, including those caused by Republican tax cuts passed under Donald Trump and since the financial crisis years, is likely to fuel Biden’s budget battles with Republicans in House of Representatives, whose demands for spending cuts pushed the US to the brink of bankruptcy in early June over the debt ceiling.
The deal to avoid a government shutdown amid demands by Republican hardliners for more spending cuts led to the ouster of US House Speaker Kevin McCarthy and the party remains divided over who should lead, which is expected to make negotiations more difficult ahead of the new budget deadline in mid-November.
“The reduction in revenue makes a significant contribution to the 2023 deficit, underscoring the importance of President Biden’s enacted and proposed tax reform policies,” Treasury Secretary Janet Yellen and Office of Management and Budget Director Salanda said in a joint statement. Yang.
The 2023 budget deficit would have been $321 billion larger, but was reduced by that amount because the Supreme Court ruled Biden’s student loan forgiveness program unconstitutional. The decision forced the finance ministry to overturn a precautionary charge against the results of the 2022 fiscal year budget that increased that year’s deficit.
The fiscal year 2022 deficit was $1.375 trillion.
Taking into account the two one-time adjustments, last fiscal year’s deficit would have been closer to $1 trillion and this year’s deficit closer to $2 trillion, a Treasury official said.
Debt servicing costs at record highs
But the Congressional Budget Office has warned that under current tax and spending laws, US deficits will approach pandemic-era levels by the end of the decade, reaching about $2.13 trillion in 2030 , as interest, health and pension costs rise.
For fiscal 2023, total revenue fell $457 billion, or 9% from fiscal 2022, to $4.439 trillion, primarily due to a decline in non-withheld personal income tax payments amid worse performance in stocks and other financial assets. figures as interest rates rose.
Other revenue declines included a $106 billion drop in Federal Reserve revenue as interest paid on bank reserves ate into any portfolio revenue.
The cost of servicing the federal debt that exceeds 33 trillion. dollars also rose sharply, up 23% to a record $879 billion. Net interest payments, excluding intergovernmental transfers to trust funds, rose 39 percent to $659 billion, also a record, according to a Treasury official.
Gross interest payments stood at 3.28 percent as a percentage of gross domestic product, GDP, and the net rate at 2.45 percent was the highest since 1998, the official said.
Interest rates have soared over the past year and a half as the Federal Reserve raised borrowing costs to slow inflation. The average interest cost on outstanding Treasury debt was 2.97% last fiscal year, up from 2.07% the year before.
