US goes to polls, but federal deficit hits $1.8 trillion, highest in post-Covid era

With the 2024 US Presidential election round the corner, the Congressional Budget Office (CBO) released worrying numbers that showed the federal government deficit swelled to $1.8 trillion in fiscal year 2024.

The US budget deficit exceeded primarily due to increased spending on interest and programs for older Americans, as the government continues to contend with a significant disparity between federal expenditures and tax revenues.

The deficit for the fiscal year 2024, which ended on September 30, highlights that the US government has spent way beyond what it collected in revenue.    

As per a report by Reuters, the US federal deficit in fiscal year 2024 has been the highest in the post-COVID era, as debt interest costs jumped sharply and outlays rose for social security, medicare and health insurance tax credits.

In a report on Tuesday, the CBO warned that interest payments on debt reached $950 billion, higher than the Pentagon budget.

The Joe Biden-led US government spent $6.8 trillion in fiscal year 2024 which is about 10 per cent higher than the prior fiscal year.

In the fiscal year 2023, the federal deficit reached $1.7 trillion. It would have been around $2 trillion if the impact of Biden’s federal student debt cancellation plan, which the Supreme Court struck down before it took effect, was not included.

Fiscal deficit a concern for US

Fiscal deficit is usually a matter of concern during the years of presidential polls, but the presidential candidates Donald Trump and Kamala Harris — and congressional leaders — have unveiled expensive policies without mentioning much about how they will fully pay for the measures.

However, the ongoing fiscal imbalance may hinder Congress’ ability to negotiate a spending agreement for fiscal year 2025 and to tackle the debt ceiling, which will be reinstated on January 2.

To avoid a possible shutdown, lawmakers, last month, reached a deal to fund the government until December 20.

Meanwhile, Harris and Trump have far different approaches to handling the US’ finances.

As per a nonpartisan estimate released on October 7 by the Committee for a Responsible Federal Budget (CRFB), a top Washington fiscal watchdog, Trump has proposed programs or tax policies that could increase the debt by as much as $15.2 trillion or as little as $1.45 trillion through 2035.

The Republican presidential candidate has proposed massive tariffs on imports that could raise as much as $4.3 trillion over 10 years.  

The CRFB estimated that Harris’s proposals could cost up to $8.1 trillion, but they could also be completely funded through targeted tax increases on the wealthiest individuals and large corporations, as well as higher tax rates on capital income.

Harris has pledged to extend the 2017 tax cuts for those making less than $400,000 a year and said earners in the top tax bracket would pay a 39.6 per cent rate. But the vice president, who is aiming for the president post, has not proposed specific new tax rates for filers in between those ranges, making it difficult to assess the budgetary impact of that policy.

With inputs from agencies.