The US federal deficit for fiscal year 2023 may unexpectedly double! Will it trigger a debt crisis?
According to the Federal Budget Accountability Committee, an independent research institution in the United States, the federal budget deficit may double compared to the 2022 fiscal year in the 2023 fiscal year, which ends at the end of this month.
According to the Washington Post on the 3rd, the federal fiscal expenditure in fiscal year 2020 and 2021 set a record due to the response to the COVID-19, and the federal fiscal deficit in fiscal year 2022 dropped significantly, from nearly $3 trillion to about $1 trillion. However, the Federal Budget Accountability Committee predicts that the deficit for fiscal year 2023 may reach approximately $2 trillion.
Similar to the decline in federal government spending in the 2022 fiscal year due to reduced aid for epidemic relief, such spending continued to decrease in the 2023 fiscal year, but other factors pushed up deficit levels: an increase in social security linked to inflation levels; An increase in investment in education, welfare for retired soldiers, and medical insurance; According to the Infrastructure Act and the Inflation Reduction Act, funding expenditures have increased.
Usually, the federal fiscal deficit increases during economic downturns and decreases during economic growth periods, as businesses and consumers pay more taxes and the government does not need to spend heavily to assist the unemployed. The current surge in federal deficits, coupled with economic growth, record low unemployment rates, and overall solid corporate revenue, has surprised many economists.
"The economy is showing strong signs of improvement and there have been no new emergency expenditures, but there has been such a deficit," said Jason Freeman, a Harvard University economics professor who served as the government's senior economic advisor under former President Barack Obama. "The magnitude of the deficit in a fiscal year would make you think something strange is happening."
Scholars have different opinions on the impact of soaring deficits on the US economy, including whether it will trigger a federal government debt crisis.
According to Matthew Klein, an analyst who studies the global economy, the United States can deal with the soaring deficit by issuing additional treasury bond, and the debt crisis is unlikely to occur.
Brian Riddle, an economist at the Manhattan Institute, a liberal think tank, believes that by the early 1930s, the US federal deficit could add nearly $3 trillion annually, pushing up interest rates, suppressing investment, and raising loan costs, gradually making interest payments the largest expenditure of the federal government, thereby increasing the risk of a debt crisis.
Financial analyst Keira Scanlon believes that if decision-makers determine that the federal deficit level is too high, they can "self limit" and cautiously approve significant spending in the face of recession.
The Washington Post speculates that deficit growth may lead to intense discussions in Congress about federal fiscal policy. The Democratic and Republican parties may argue over whether to extend the soon to expire large-scale tax cuts after the resumption of Congress this month, and may even lead to the federal government shutting down in the autumn.
The Washington Post also said that Democratic President Joseph Biden had repeatedly boasted that the federal deficit had been significantly reduced under his administration compared to former Republican President Donald Trump. Now, in the 2023 fiscal year, the federal deficit unexpectedly turns red, making Biden's rhetoric appear pale. This is not favorable for Biden, who is seeking re-election as president in 2024.
If Republicans in Congress continue to insist on large-scale tax cuts when facing the federal deficit, it will also raise doubts about their call for "greater fiscal responsibility" from the outside world.
