WASHINGTON – The federal budget deficit rose to $666 billion in the just-completed fiscal year, a spike that comes as Republicans are moving to draft a tax code rewrite that promises to add up to $1.5 trillion to the national debt over the coming decade.
The sobering deficit numbers, released Friday by the Treasury Department and the White House budget office, followed Senate passage Thursday night of a 10-year budget plan that shelves GOP concerns on deficits and debt in favour of a tax overhaul.
Still, House Speaker Paul Ryan of Wisconsin insisted Friday on “CBS This Morning:” ”We’re Republicans. We’re sensitive to the deficit.”
President Donald Trump and his GOP allies on Capitol Hill promise this year’s tax legislation will spark a burst of economic growth — and hope it will pay big political dividends for their party.
Friday’s budget figures represent an $80 billion jump over last year’s $585 billion deficit, which itself was way up over the previous year’s $438 billion.
The administration says the sour deficit report shows a need to pass the tax overhaul measure.
“Through a combination of tax reform and regulatory relief, this country can return to higher levels of GDP growth, helping to erase our fiscal deficit,” said Treasury Secretary Steven Mnuchin.
“These numbers should serve as a smoke alarm for Washington, a reminder that we need to grow our economy again and get our fiscal house in order. We can do that through smart spending restraint, tax reform and cutting red tape,” said White House budget director Mick Mulvaney.
Mulvaney drafted Trump’s May budget plan, which promised to balance the budget within a decade, but only through politically unrealistic cuts and rosy assumptions of economic growth. But Trump hasn’t promoted the effort, which was quickly shelved by the GOP in Congress.
The White House in July revised its short-term deficit outlook significantly to warn of worsening deficits. Since then, a bad hurricane season has forced the government to spend billions in disaster relief.
The deficit issue has largely fallen in prominence in Washington in recent years, and Trump doesn’t speak of the issue. He has ruled out cuts to Social Security and Medicare. Earlier, gridlock between former President Barack Obama and congressional Republicans took hold after failed attempts at budget deals. Most economists don’t believe the deficit is very worrisome in the short term, though it is creeping above 3 per cent of the size of the economy, a threshold that bears watching.
The picture over the long run is more problematic, at least under a conventional view that if deficits continue to rise and the national debt grows, government borrowing will “crowd out” private lending and force up interest rates. And if interest rates go up, the government would have to pay much more to finance the more than $14 trillion in Treasury debt held by investors.