Treasury: 2019 Deficit was $984 Billion

The Treasury Department released final budget numbers for Fiscal Year (FY) 2019 today, showing last year's deficit totaled $984 billion, a $205 billion (or 26 percent) increase from the prior year and a 48 percent increase from 2017. As a result of September tax payments, these figures are slightly lower than the $1.07 trillion deficit reported in the first 11 months of 2019. Nonetheless, they total 4.6 percent of Gross Domestic Product (GDP), the highest as a share of the economy since 2012 and highest ever at this point in the economic cycle.

The $205 billion increase in the deficit comes from spending growing rapidly, while revenue grew only barely and from low levels.

Overall, spending grew by 12 percent ($465 billion) since 2017 and 8 percent ($339 billion) from the prior year at a time when inflation has been less than 2 percent annually. Interest was the fastest-growing portion of the budget, increasing 16 percent since last year. All other areas of spending also grew quickly – Medicare grew by 11 percent (though in part due to timing issues), defense by 9 percent, Social Security by 6 percent, and other domestic spending by 7 percent. Whereas rising health and retirement costs typically drive deficit growth, increased discretionary spending as a result of consecutive budget cap increases is the largest factor of recent spending growth.

At the same time spending grew, revenue remained largely flat as a share of the economy at a very low level. In dollars, revenue grew $133 billion from 2018 – a 3.8 percent increase – and only $146 billion (about 4 percent) from 2017. Only tariff and payroll tax revenue have seen significant growth over the past two years.

Source: U.S. Treasury.

As a share of GDP, spending has also grown, rising from 20.3 percent in 2018 to 20.9 percent in 2019. Revenues fell slightly between 2018 and 2019, at 16.5 and 16.3 percent of GDP, respectively. However, revenue has fallen more significantly since 2017, when it totaled 17.2 percent of GDP.

Recent legislation is responsible for almost 60 percent of last year's deficit. CBO estimated that the 2017 tax law would cost almost $230 billion in FY 2019, which would account for 23 percent of the deficit. The Bipartisan Budget Act of 2018 was estimated to cost $190 billion in 2019, which would account for about 19 percent of the deficit. Other deficit-increasing legislation passed since 2015 added another $140 billion to the 2019 deficit. The tax law and this year's spending deal (the Bipartisan Budget Act of 2019) are expected to add even more to the deficit in FY 2020 ($272 billion and $98 billion, respectively), pushing it over $1 trillion for the first time since 2012.

Whereas the deficit totaled $984 billion in 2019, debt rose by even more. Over the year, the debt held by the public increased by $1.06 trillion – from $15.7 trillion at the beginning of the fiscal year to $16.8 trillion at the end of the fiscal year – and is 79 percent of GDP. This difference largely stems from the treatment of student loans, which add to the debt when issued but only contribute to the deficit to the extent they are expected to lose money over the life of the loan.

In a statement, Committee for a Responsible Federal Budget co-chairs Mitch Daniels, Leon Panetta, and Tim Penny criticized the lack of leadership shown by either party in allowing for the deficit to grow so large at a time when it should be contracting. As they said in their statement:

Our nation’s leaders are in debt denial, running up red ink all while ignoring trillions of dollars in shortfalls for Social Security, Medicare, and other programs that many millions of Americans rely upon. We are at a turning point – without action now to phase in reforms over the coming years, Americans will face a much different future than the one that was promised. We can’t wait for another year or another Congress or another president to tackle these challenges. — Mitch Daniels

A deficit of this size following the longest span of economic growth in history shows just how reckless our leaders have become. This is exactly the time when deficits should be contracting, not expanding. But instead of getting our fiscal house in order and preparing for the next downturn, our leaders continue to binge on debt rather than showing the leadership necessary to set our fiscal path. — Leon Panetta

By next year, our deficits will likely top one-trillion dollars and keep rising indefinitely. It is unsustainable by any measure. Throwing tax cuts and spending increases on the national credit card were not examples of bipartisanship or leadership. They were examples of irresponsibility and short-sightedness. It is time to stop fighting and come together to solve our nation’s biggest fiscal challenges. — Tim Penny

The deficit increased significantly in FY 2019, and almost three-fifths of deficit was caused by recent legislation, particularly the 2017 tax cuts and the subsequent spending increase. Deficits are projected to remain large and growing over the foreseeable future. Policymakers must enact needed reforms to shore up Social Security and Medicare, increase revenue, decrease wasteful spending, and ultimately put the debt on a sustainable downward path as a share of the economy.