U.S. Records Soaring $1.695 Trillion Budget Deficit in Fiscal 2023, Highest Since 2021

In fiscal year 2023, the U.S. government faced a daunting financial challenge, as it recorded a staggering budget deficit of $1.695 trillion.

This alarming figure represented a substantial 23% increase from the previous year, driven by a decline in revenues and soaring expenditures related to Social Security, Medicare, and the astronomical interest costs incurred by the federal debt.

The Treasury Department officially confirmed that this deficit was the largest since the height of the COVID-19 pandemic, surpassing even the $2.78 trillion gap recorded in 2021.

This marked a sharp departure from the previous two years during President Joe Biden’s tenure, which had seen declining deficits.

This ballooning deficit emerged at a critical juncture when President Biden was seeking congressional approval for $100 billion in new spending, primarily allocated to foreign aid and security.

The proposal included $60 billion designated for Ukraine, $14 billion for Israel, and funding for U.S. border security and the Indo-Pacific region.

However, the colossal deficit was poised to ignite further fiscal disputes between President Biden and House Republicans, who had previously pushed the U.S. to the brink of default over debt ceiling concerns.

The magnitude of this deficit, exceeding pre-COVID levels and even surpassing deficits incurred during the era of Republican tax cuts and the financial crisis, is expected to complicate future negotiations, particularly given the recent political turbulence in the House of Representatives.

In a ray of hope, the deficit for the final month of the fiscal year, September, dropped to $171 billion, down from $430 billion in September 2022.

The decline in revenues was identified as a significant contributor to the 2023 deficit, underscoring the need for tax system reforms championed by President Biden.

It’s noteworthy that the fiscal 2023 deficit would have been $321 billion larger if not for the Supreme Court’s ruling against Biden’s student loan forgiveness program, forcing the Treasury to adjust fiscal 2022 budget results. Fiscal year 2022 had recorded a deficit of $1.375 trillion.

When factoring in these adjustments, last year’s deficit would have been approximately $1 trillion, while this year’s would have neared $2 trillion, according to a Treasury official.

This fiscal year’s deficit brought to an end two years of decreasing deficits for President Biden, coinciding with the waning of COVID-19 relief spending.

The Congressional Budget Office has cautioned that without policy changes, deficits could approach COVID-era levels by 2030, reaching approximately $2.13 trillion due to escalating interest, healthcare, and pension costs.

In fiscal 2023, total revenues declined by $457 billion (9%) compared to fiscal 2022, largely due to reduced non-withheld individual income tax payments and a less favorable performance in financial assets.

Conversely, outlays fell by $137 billion (2%) from the previous year to $6.134 trillion, with notable increases in spending on retirement and healthcare benefits for the elderly and debt service costs.

Social Security spending rose by 10% to $1.416 trillion due to inflation-adjusted cost-of-living increases, while spending on the Medicare senior healthcare program increased by 4% to $1.022 trillion.

The interest costs on the federal debt, exceeding $33 trillion, surged by 23% to a record-breaking $879 billion, with net interest payments rising by 39% to $659 billion, also marking a record high.

The skyrocketing interest payments as a share of gross domestic product reached levels not seen since 2001, reflecting the impact of rising interest rates, which had been elevated by the Federal Reserve to combat inflation.

The average interest cost on the Treasury’s outstanding debt reached 2.97% in the last fiscal year, up from 2.07% in the previous year.