We are halfway through the U.S. government’s 2024 fiscal year, and it is time to take inventory of the tragedy that is the federal budget.
According to the U.S. Treasury, in the past six months, the federal government’s debt has increased from $33,442 billion to $34,579 billion. In other words, since October 1st, the U.S. Treasury has borrowed another $1,137 billion. This is the actual budget deficit for the first six months of the fiscal year.
The borrowing does not follow a straight line but rises and falls from month to month:
- In October, the fiscal shortfall was $257.4 billion;
- In November, $179.1 billion;
- In December, $122.8 billion;
- In January, $189.7 billion;
- In February, $279.9 billion; and
- In March, $107.5 billion.
The low March number stands out, but it is not a sign of an improving budget. It is something much more trivial, namely the result of last-minute tax payments ahead of the April 15 federal tax filing deadline.
In addition to the debt rising at a brisk pace, there is also the rising cost of interest on the debt. In the first half of the 2024 fiscal year, the debt itself has grown by 3.4%. Meanwhile, the annualized interest cost on that debt has gone up by 13.8%—more than four times faster than the debt itself.
On October 1st, 2023, the first day of the 2024 fiscal year, the annualized interest on the debt was $956 billion; six months later, at the end of March, it has increased to $1,088 billion.
The annualized interest cost is a number that indicates how much the government is going to have to pay its creditors over the course of the year. It is a predictive estimate of what that cost would be if the debt stopped growing today, and if its composition remained unchanged for the rest of the fiscal year. As such, it is an approximate number, but it helps us forecast what the cost is going to be for the entire fiscal year, and a fairly accurate one at that.
Just before Easter, the U.S. Bureau of Economic Analysis, BEA, released its latest update on the federal government’s fiscal situation. The BEA reports numbers by calendar year, and by quarters, a point worth remembering: when we mention years, are they calendar or fiscal years?
The BEA breaks down its numbers for the 2023 calendar year by quarters. Among the numbers for the fourth quarter, they report the outlays for interest on the government debt to be just a hair over $250 billion. This is the highest one-quarter U.S. number ever for interest on government debt.
Adding up the interest costs for all four quarters, we get $947.6 billion for all of 2023.* In the 2022 calendar year, interest on the federal debt added up to $725.7 billion, which means a 30.6% rise in one year.
One of the messages in these numbers is unmistakable: the interest on the federal debt is gradually but unstoppably pushing all other spending priorities to the side. There is another message that is not as apparent but at least as ominous: more than 80% of the rise in the interest cost is due to the growth in the debt. Therefore, the only meaningful way to stop the growth in the debt is to bring the federal government’s budget into balance.
I will publish two articles later this week on how to do just that; for now, let us nail down exactly how big of a budget deficit the federal government has.
This number is not as easily identified as one would think. The aforementioned BEA data suggest that the federal government’s total official deficit for the 2023 calendar year was $1,603 billion. However, during that same period of time, U.S. Treasury data report an increase in the federal debt by $2,582 billion. This is a discrepancy of $579 billion.
Fiscal accounting experts will give us a list of technical reasons why this discrepancy cannot be part of the deficit. However, both common sense and the so-called Haig-Simons definition of income (for a brilliant explanation of it, see the exchange between Joe Pechman and Boris Bittker in the Harvard Law Review, 1967-1968) tell us that the actual deficit for calendar year 2023 was $2,582 billion.
With the same approach to 2024, both the calendar year and the fiscal year, we are looking at another episode of more than $2 trillion in new debt for the United States government. This means that we will see even more of the trend that I pointed to in early January, namely that borrowed money now is the biggest source of income for the federal government. With nearly $2.6 trillion in deficit for the 2023 calendar year, the biggest tax revenue source, personal income taxes, comes in second at $2.2 trillion. Total social insurance taxes come in at $1.6 trillion (although most of that is counted as “off budget,” again for technical reasons) while taxes on corporate income delivered $420 billion in revenue.
Although lower levels of government,—i.e., states, counties, cities, and other local jurisdictions—usually have better finances, it is a depressing experience to read U.S. public finance data. The outlook for the rest of 2024, both the fiscal year and the calendar year, does not change much in that regard. We can hope that Congress has an epiphany at some point and starts trying to get its fiscal house in order, but that does not help much. After all, we don’t elect a Congress and a president only to hinge our hopes for sounder government finances on epiphanies.
* This is only $8 billion away from the $955.8 billion that the annualized interest model predicted the cost to be three months earlier, at the end of September 2023. For technical reasons, the annualized numbers are better predictors of the rate costs three months ahead than an estimate of the interest cost ‘today.’
