By Glenn Fleishman
October 16, 2018

The U.S. federal deficit grew 17% in the 2018 fiscal year that ended Sept. 30, ballooning to $779 billion. Such an increase is effectively unheard of in a strong economy with robust job growth and low unemployment.

The Congressional Budget Office (CBO) projects the budget deficit will swell to a trillion dollars in the 2019 fiscal year, and continue growing indefinitely. This will raise the national debt from almost $16 trillion today to nearly $29 trillion by 2028.

The Trump administration’s director of the National Economic Council, Larry Kudlow, in July stated incorrectly that the deficit was coming down rapidly. No data supported that. He later said he “probably should have said future deficits,” but the CBO and independent analysts find no evidence for that assertion.

Mitch McConnell, the leader of the Senate, blamed the increased deficit on Social Security, Medicare, and Medicaid. While Social Security and Medicare are funded from employer and employee taxes paid by active workers, the U.S. spent previous surpluses, which it owes to the funds. Even had those extra funds remained intact, spending from the general budget would eventually have increased. Medicaid is paid directly as an entitlement.

McConnell made no mention of the large set of individual and corporate tax cuts passed in late 2017 nor increased military spending. Estimates put the cost of the cuts at $2.3 trillion over 10 years.

The Senate’s top Democrat, Chuck Schumer, said in a rejoinder, “To now suggest cutting earned middle-class programs like Medicare, Social Security, and Medicaid as the only fiscally responsible solution to solve the debt problem is nothing short of gaslighting.”

In a statement, Treasury Secretary Steven Mnuchin said military spending increased “after years of reductions in military spending undermined our preparedness and national security.”

White House budget director Mick Mulvaney pinned the blame on Congress in the same statement. “This fiscal picture is a blunt warning to Congress of the dire consequences of irresponsible and unnecessary spending,” he said.

These deficits come in the face of a robust economy with continued job growth and modest, but ongoing, rises in real wages. Deficits usually shrink or turn into surpluses during economic upturns with low unemployment.

In 2000, when the unemployment rate was last as low as 3.9%, its current level, the U.S. government recorded its third year of budget surpluses. That was true in 1969, as well, when even in the midst of the Vietnam War, spending was under budget, while the unemployment rate was in its fifth year of 4% or less.

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