“The economy is booming”, a Trump tweet read on Friday, just before the Treasury Department announced the latest deficit figures. One of President Trump’s promises had been to reverse the federal deficit within eight years. After his second completed fiscal year, however, the deficit has reached its apogee since 2012.
The budget deficit of the US government has risen to its highest level in seven years: In the fiscal year 2019 (which ended in late September), the deficit increased by $205 billion to $984 billion (The Federal Deficit Marks the Highest Since 2012 as $885 billion) – a spike of 26 per cent – according to the Treasury Department.
These figures corresponded to a deficit ratio – i.e. a ratio of gross domestic product – of 4.6 per cent. Although the revenue increased by 4 per cent to $3.462 trillion, while, at the same time, government spending increased by 8 per cent to $4.447 trillion.
It is the second full financial year under Trump who has taken office in times of prosperity. The deficit reached $1.4 trillion in 2009 when the deficit reached almost 10 per cent, the highest since World War II. Trump’s predecessor President Obama and Congress enacted measures to shrink the deficit to 2.4 per cent in 2015 and reduced the overall deficit to $585 billion by the end of his second term in 2016. Insufficient for Republicans, who demanded more significant reductions at the time.
After taking office, President Donald Trump aimed to eliminate the deficit within eight years. Not only did he introduce a comprehensive tax reduction program, particularly for the benefit of businesses, his version of Reaganomics or Supply-side Economics, Trump also increased spending in critical areas such as the Defense Department (+9 per cent). Moreover, inter alia, debt service expenditures also contributed to the increase in the deficit while interest payments grew by ten per cent or a volume of $51 billion.
In June 2017 the Congressional Budget Office predicted that the revenue shortfalls caused by Trump’s tax cuts would be mitigated by the growth impetus generated by the reform, i.e. the tax revenues from growing economic activity and employment. However, despite the continued substantial growth rates so far, it has not been possible to compensate for the increase in spending and the congressional projection remains shy by $400 billion. Finance Minister Steven Mnuchin nevertheless assessed the budget balance as proof that Trump’s economic agenda was “working”, before urging Congress to stem “wasteful and irresponsible spending.”
The spending spree since 2016 has ballooned the deficit to now 4.6 per cent again. Even the most partisan politicians should be cognizant of these following facts, however: Circumstances since the last significant deficit spike are different. The unemployment rate is at a historic low, and the economy has been growing for 11th years straight– a record. Nonetheless, it would be dishonest not to give President Trump some credit for these achievements, as his deregulation policies have evidentially helped the economy.
However, the growing fears about a possible recession amongst Americans will not decrease after the deficit news has become public, and Trump, twelve months away from the election, might be facing yet another conundrum. The economy has been his signature reelection bid – besides political victimhood – and the current situation demands answers for a plan beyond 2020. Even more so, if the rumoured recession ought to materialise.
A focus on a Democratic “witch hunt” and his – at best – incoherent foreign policy will likely not be sufficient to obtain a second term – no matter how hard the Democrats have been trying to alienate moderate voters lately.
Furthermore, while Trump has certainly kept his word on some relevant and needed plans, a prison reform nor strengthening the borders will suffice once his impervious base feels the effects of a potential economic crisis. Promises made. Promises kept?