The federal budget deficit officially rose to $1.7 trillion for fiscal 2023, which ended in September, the Treasury Department announced on Friday.
The Treasury Department said that the shortfall was $320 billion higher than the $1.4 trillion notched during the previous fiscal year and comes as the Federal Reserve has driven interest rates up to their highest level since the turn of the century, which has increased the cost of paying interest on the federal debt.
As a percentage of gross domestic product, the deficit was 6.3% during this fiscal year, an increase from the 5.4% notched in fiscal 2022.
In a news release, the Treasury Department asserted that falling revenues are a significant contributor to the 2023 deficit and stressed that President Joe Biden has advocated for tax policies that would grow revenue and thus lower the deficit.
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In a Friday statement, Treasury Secretary Janet Yellen highlighted how even as the Fed raises rates and the global economy faces challenges, the country’s labor market and economic output has been able to remain above water.
“The U.S. economy remains resilient despite global headwinds. Previous expectations that the U.S. would fall into recession over the course of 2023 have not borne out,” she said. “Our economy added over 300,000 new jobs in September and our GDP growth continues to surprise forecasters to the upside, even as inflation has come down significantly since last year.”
Spending was $6.1 trillion in fiscal 2023, $237 billion less than projected in the budget. Compared to the year before, spending decreased $137 billion, or 2.2%. The decline from fiscal 2022 is due in part to the Supreme Court’s decision to reject President Joe Biden’s student loan forgiveness plan.
The increase in the federal deficit is a reversal from the past few years, when deficits decreased as the government spend less on pandemic relief. During the pandemic, deficits swelled massively as the government approved several rounds of massive stimulus packages that gave money directly to individuals and businesses. For instance, the deficit in fiscal 2021 was $2.8 trillion.
Budget deficits, which is the difference between spending and revenues in one year, and burgeoning debt, which represents the accumulated deficits, are major concerns for the country’s fiscal health. It is estimated that the national debt is now at more than $33.5 trillion, about $2.5 trillion higher than it was just one year ago.
Rising interest rates are adding to the concerns about the deficit. Borrowing costs have risen very fast as the central bank keeps its interest rate target at levels not seen since the turn of the century.
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With higher rates, it means the government needs to pay more in interest in order to handle that borrowing — a situation that has raised concerns about the country’s overall fiscal health.
A few months ago, an analysis by the nonpartisan Congressional Budget Office projected that public debt would shoot to 107% of the country’s gross domestic product by 2029 and explode to a whopping 181% by 2053.
