Official data show that the U.S. government’s deficit situation was dire in the just-concluded fiscal year. In the 200-year history of the United States, the annual deficit in fiscal year 2024 is the highest level, not counting the period of the COVID-19 pandemic. This is mainly due to the Federal Reserve’s interest rate hikes and high interest rates, resulting in a heavier burden for government debt interest, increased costs for social security programs, and increased military spending.
On Friday, October 18, Eastern Time, the U.S. Treasury Department announced that the U.S. federal government’s fiscal deficit in fiscal year 2024 ending September 30, 2024, will reach 1.833 trillion U.S. dollars, the third highest on record, second only to 3.132 trillion U.S. dollars in fiscal year 2020 during the COVID-19 pandemic and 2.772 trillion U.S. dollars in fiscal year 2021.
The budget deficit in fiscal 2024 expanded by more than 8.1% from nearly $1.7 trillion in fiscal 2023, and the deficit-to-GDP ratio exceeded 6% for the second consecutive year, accounting for 6.4%, slightly higher than 6.2% in fiscal 2023.
The government debt interest payments for the fiscal year increased by 29% to $1.1 trillion, the highest percentage of GDP since 1998.
U.S. Treasury officials said the fiscal year budget deficit announced this time is $144 billion lower than the baseline expected deficit of $1.91 trillion disclosed when the 2024 budget was released in March. This is mainly due to the Biden administration’s cancellation of the student loan relief program.
Although it has fallen from previous expectations, the government deficit to GDP ratio has reached a level rarely seen outside of recessions and world wars. The main driver of the deficit expansion is the growing interest in the debt.
Wall Street Journal once mentioned that data released by the Treasury Department in September showed that in the first 11 months of fiscal year 2024, the U.S. government’s interest costs exceeded the $1 trillion mark for the first time in history, reaching $1.049 trillion, a year-on-year increase of 30%.
The Ministry of Finance also announced that the interest payments on the U.S. government debt will reach $1.1 trillion in fiscal year 2024, an increase of $254 billion or 29% from fiscal year 2023. Based on this calculation, debt interest payments account for about 3.93% of GDP, the highest proportion since 1998.
However, the Federal Reserve started cutting interest rates in September, launching an easing cycle. The pressure on the U.S. government’s interest expenditure is expected to ease.
As of the end of September, the weighted average interest rate on outstanding U.S. federal debt was 3.32%, about the highest level in 15 years. Reuters quoted a U.S. Treasury executive as saying that the weighted average interest rate on this debt cost began to decline in September, the first decline in the interest rate since January 2022.
Social Security spending increased by over 100 billion yuan a year, and half of the government’s annual revenue increased from personal income tax.
Two other primary sources of spending growth in fiscal 2024 are Social Security, the federal government’s program to help seniors and disabled workers, and defense.
In fiscal year 2024, the U.S. federal government will spend $6.8 trillion, an increase of $617 billion, or 10.1%, compared to fiscal year 2023. The ratio to GDP will rise from 22.5% to 23.4%. Among them, spending on social security projects will increase by $103 billion, or 7%; defense spending will increase by $50 billion, or 6% year-on-year; and spending on Medicare, the most extensive health insurance program of the federal government, will increase by $28 billion, or 3%.
Judging from the year-on-year increase in expenditure, the most significant increase in spending in fiscal year 2024 comes from Social Security, while if we look at the percentage increase, the growth rate of government debt interest costs far exceeds that of Social Security.
In terms of revenue, fiscal year 2024 will also see double-digit growth, with full-year revenue of $4.919 trillion setting a record for fiscal year revenue, accounting for 17.1% of GDP, an increase of $479 billion year-on-year, a growth rate of 10.8%.
The Ministry of Finance said that the revenue growth mainly came from an increase of $250 billion in personal income tax and $110 billion in corporate income tax. Based on this calculation, the increase in individual income tax accounted for 52% of the annual revenue increase, and corporate income tax accounted for about 23%.
Presidential candidates face deficit challenges.
The media generally believes that the budget deficit issue will bring challenges to the U.S. presidential candidates who will face off in the November election. Previous analysis has said that “Harris Economics” and “Trump Economics” have one thing in common: the deficit. Both Harris and Trump say they hate inflation, but their proposed economic policies may lead to rising prices in the United States and an increase in the fiscal deficit.
The Committee for a Responsible Federal Budget, a fiscal think tank, estimated earlier this month that Harris’ economic plan would increase government debt by $3.5 trillion over a decade. In contrast, Trump’s economic plan would cause the debt to surge by $7.5 trillion.
