The US government on Friday recorded a budget deficit of $1.695 trillion during the 2023 fiscal year, which represents a 23% increase compared to the previous year.
This increase was the result of lower revenues and higher expenditures on Social Security and Medicare, in addition to rising interest costs on the federal debt.
The Treasury Department reported that this deficit is the largest since the large gap recorded in 2021 as a result of the repercussions of the Covid-19 pandemic, which amounted to $2.78 trillion.
This represents a significant return to the large deficit after its successive decline in the first two years of President Joe Biden’s term.
This deficit comes at a time when Congress is being asked to allocate $100 billion in new foreign aid and security spending, including $60 billion for Ukraine and $14 billion for Israel, in addition to funding US border security and the Indo-Pacific region.
It’s expected that this large deficit, which exceeds all deficits recorded before Covid-19, will have a significant impact on the escalation of Biden’s financial crisis with Republicans in the House of Representatives.
Their spending demands are a catalyst for escalating tensions, with the government at risk of default at the start of June due to the debt ceiling negotiation.
They agreed to avoid a government shutdown due to hardline Republican demands for spending cuts, which led to the impeachment of US House Speaker Kevin McCarthy.
The Republican party remains divided over its leadership, and negotiations to choose a leader are expected to take place before mid-November.
In September, the last month of the fiscal year, the deficit fell to $171 billion compared to $430 billion in September 2022.
The 2023 deficit would have been larger by $321 billion, but was reduced by that amount due to the Supreme Court’s decision to strike down Biden’s student loan forgiveness program as unconstitutional.
The ruling forced the Treasury Department to cancel preemptive fees imposed by the fiscal year 2022 budget, which increased the deficit that year.
The deficit in fiscal year 2022 reached approximately $1.375 trillion.
A Treasury Department official noted that given the one-time adjustments made, the deficit in the previous fiscal year would have been closer to $1 trillion, while this year is closer to $2 trillion.
The 2023 deficit marks the end of two years of deficit decline for Biden, after spending to combat the coronavirus pandemic declined.
The US deficit peaked in fiscal year 2020 at $3.13 trillion, driven by severely constrained tax revenues and increased spending on unemployment benefits, direct payments to consumers and aid to businesses.
But the Congressional Budget Office warned that the US deficit will rise significantly by the end of the decade and reach about $2.13 trillion in 2030 based on current tax and spending legislation, due to rising interest, health and pension costs.
For fiscal year 2023, total revenues were down $457 billion, or 9%, from fiscal year 2022, reaching $4.439 trillion.
This decline was largely due to lower non-withholding individual income tax payments and worse performance of stocks and other financial assets as well as higher interest rates.
Other revenue declines included a $106 billion decline in Federal Reserve earnings, as interest paid on banks’ reserves was fully engaged.