Published: Wed, October 17, 2018
Global News | By Blake Casey

Federal Deficit Jumps 17 Percent As Tax Cuts Eat Into Government Revenue

Federal Deficit Jumps 17 Percent As Tax Cuts Eat Into Government Revenue

The federal government usually increases spending - and deficits - to boost a faltering economy - such as during the 2008 recession triggered by the subprime mortgage and banking crisis.

The current fiscal year is likely to see an even larger deficit, potentially in excess of $1 trillion.

The U.S. federal government closed the 2018 fiscal year $779 billion in the red as tax cuts hit revenues and the government paid more to service a growing national debt, according to Treasury Department data released on Monday. As a share of the economy, tax receipts shrank to 16.5 percent of GDP, from 17.2 percent the previous year.

The budget deficit has continued to climb in recent years, raising concerns the country's debt load of more than $21.5 trillion will grow out of control. Tax revenues were essentially flat in fiscal 2018, while spending increased 3.2 per cent as Congress gave more funds for military and domestic programmes.

Revenues generally tumbled after December when Trump signed into law a $1.5 trillion package of corporate and personal income tax cuts over the next decade.

The tax cuts have caused economic growth to accelerate this year with Federal Reserve officials anticipating gains of 3.1 per cent.

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In response to the Treasury's statement, Democrat Senator Bernie Sanders blamed Republicans for the deficit. "The fact that our government is closing in on trillion-dollar deficits in the midst of an economic expansion should be a serious issue for voters and candidates", William Hoagland, its senior vice president, said of next month's USA congressional elections.

The federal deficit was $665 billion in 2017, according to the Congressional Budget Office.

"President Trump prioritized making a significant investment in America's military after years of reductions in military spending undermined our preparedness and national security", Mnuchin said.

"Going forward the President's economic policies that have stimulated strong economic growth, combined with proposals to cut wasteful spending, will lead America toward a sustainable financial path", Treasury Secretary Steven Mnuchin said in a statement.

Higher defense spending, plus increases in Medicaid, Social Security and disaster relief were contributing factors.

"By cutting taxes in 2017 when the economy was already quite strong, Congress and the administration not only missed a golden opportunity to begin to address the fiscal problem, they actually made the problem worse", he said.

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