Uncle Sam’s creditors are seeing double

This fiscal year, the US federal deficit is expected to roughly double from 2022 to reach $2 trillion, according to new projections from the nonpartisan Committee for a Responsible Federal Budget.

The organization says the elevated deficit compared to the previous fiscal year can’t be pinned on any single reason, but rather a combination of several factors:

• Increased payments on existing debt. The US national debt currently sits at just under $33 trillion, with total interest payments projected to reach $612 billion in FY 2023 – a figure $136 billion higher than last year that also represents 2.3% of America’s overall GDP.
• Lower federal tax revenue across the board. This includes $278 billion less revenue from annual or quarterly tax returns so far this fiscal year, driven partially by a significant drop in revenue from capital-gains taxes after stocks soared in 2021 but dipped in 2022.
• Higher inflation and elevated interest rates. An increase in prices over the past year has contributed to a $130 billion annual bump in federal spending on Social Security, while the Fed’s interest rate hikes have led to $100 billion in reduced earnings for the central bank (which gives its profits to the US Treasury).

📸 Big picture: The federal government has spent more money than it takes in each year since 2001, including record-setting deficit levels in 2020 ($3.1 trillion) and 2021 ($2.8 trillion).

Over the long term, consistent US deficits lead to increasingly higher interest costs on the national debt. Spending in that area is currently projected to become the single largest line item in the federal budget by 2051, surpassing Social Security, Medicare, Medicaid, etc.

📊 Flash poll: In your opinion, how should the US government deal with its rising national debt?

Raise taxes

Cut spending

Print more bonds/money to cover interest

Some combination of the above

Nothing needs to be done

Other/unsure