U.S. Posts Biggest Budget Deficit Since 2012

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These Are the 3 Reasons the US Deficit Is out of Control
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Three Reasons for the Current Budget Deficit
Many people blame the deficits on entitlement programs. But that's not supported by the budget. These enormous deficits are the result of three factors.


First, the attacks on 9/11 led to the War on Terror. It's added $2 trillion to the debt since 2001. It almost doubled annual military spending. It rose from $437.4 billion in 2003 to a peak of $855.1 billion in 2011. That includes the defense department budget and off-budget emergency spending. It also includes spending for departments that support defense, such as Homeland Security, the Department of Veterans Affairs, and the National Nuclear Security Administration.


The Trump administration will set new records of defense spending. It is estimated to reach $874.4 billion in FY 2018 and $886 billion in FY 2019. Trump wants the additional funding to fight ISIS. Congress also granted a two-year reprieve from sequestration for military spending.

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Second is the impact of tax cuts. They immediately reduce revenue for each dollar cut. Proponents of supply-side economics argue that the government will recoup that loss over the long term by boosting economic growth and the tax base. But the National Bureau of Economic Research found that only 17 percent of the revenue from income tax cuts was regained. It also found that 50 percent of the revenue from corporate tax cuts was lost.


For example, the Bush tax cuts added $2.023 trillion to the debt between 2011 and 2020. The Congressional Research Service estimated that service cost on that debt would add another $450 billion.


Going forward, the Trump tax cut will reduce revenue. It's reducing the personal income tax rate, corporate taxes, and small business taxes. These cuts total $1.5 trillion over the next 10 years. But the Joint Committee on Taxation said the cuts would stimulate growth by 0.7 percent annually. The increased growth will add revenue, offsetting some of the tax cuts. As a result, the deficit will increase $1 trillion over the next decade.


Lastly is unfunded elements of mandatory spending. Some people point to the $1 trillion cost of Social Security as a contributor to the deficit. But it's funded through payroll taxes and the Social Security Trust Fund until 2035.


Medicare will cost $625 billion in FY 2019. But only 49 percent adds to the deficit. Payroll taxes and premiums pay for the remainder.


The rest of the mandatory budget adds to the deficit. This includes Medicaid, which will be $412 billion in FY 2019. Medicaid provides health care to those with low incomes. The mandatory budget also includes $656 billion in income support programs for those who can't provide for themselves. This includes welfare programs like TANF, EITC, and Housing Assistance. It also includes unemployment benefits for those who were laid off. Student loans help create a more highly skilled workforce. Other retirement and disability programs are for those who were former federal employees.


These include civil servants, the Coast Guard, and the military.
 
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