From Bad to Worse: How the Biden Administration is Digging a Deeper Financial Hole

In fiscal 2023, the Biden administration incurred a staggering $1.695 trillion budget deficit, marking it the third-largest in U.S. history. This financial shortfall was surpassed only during the tumultuous COVID-19 years of 2020 and 2021.

The fiscal year ended in September with a deficit of $170.98 billion, more than double the initial projection. This figure could have been even higher if not for an accounting adjustment in August related to student loan forgiveness. 

Initially, the Treasury had allocated $333.65 trillion for President Biden’s student loan forgiveness plan, but this was reversed following the Supreme Court’s rejection of the plan. The adjustment obscured the real deficit, which in reality was more than $2 trillion, $3 trillion higher than reported in the official records.

Comparatively, the 2023 budget deficit was larger than any experienced during the Obama administration amidst the Great Recession despite current claims of a robust economy. Typically, a strong economy correlates with reduced deficits due to increased tax revenue. However, this was not the case in fiscal 2023, as federal receipts decreased by 9.3%, totaling $4.44 trillion.

The federal government had a revenue surge in fiscal 2022, with federal tax collections increasing by 21% and reaching a multi-decade high of 19.6% of GDP. However, Congressional Budget Office analysts have cautioned that this trend is not sustainable, predicting a faster decline in government tax revenue as the economy potentially enters a recession.

Treasury Secretary Janet Yellen attributed the substantial deficit to the decrease in tax receipts, emphasizing the need for President Biden’s proposed tax system reforms. However, the primary issue lies with government spending. The Biden administration’s expenditures reached $6.13 trillion in fiscal 2023. Adjusting for the student loan forgiveness reversal, actual spending was $6.46 trillion, marking an 8.8% increase from the previous year.

Despite these alarming figures, the Biden administration seeks additional funds, proposing a $100 billion aid package for Israel, Ukraine, and other national security concerns. This comes when the national debt has surpassed $33 trillion, with an additional half a trillion dollars in just 20 days.

While it is easy to blame President Biden, this issue of excessive spending is not unique to his administration. The Trump administration also engaged in significant borrowing and spending. After the economic crisis of 2008, the U.S. government has only recorded deficits exceeding $1 trillion four times prior to the COVID-19 pandemic. The economic turmoil caused by the government’s response to COVID-19 led to unchecked spending, setting a new norm of running deficits comparable to those seen during the financial crisis every year.

The rapid increase in national debt is particularly concerning given the current climate of rising interest rates. Interest expenses rose by 23% to $879 billion, with net interest reaching a record-breaking $659 billion. The average interest rate on the debt is now at its highest since 2011, and with a significant portion of the debt-financed at low rates prior to the Federal Reserve’s rate hikes, interest payments are expected to rise swiftly unless rates fall.

This situation presents a fiscal time bomb, with the potential for annual deficits to skyrocket, further exacerbating the national debt crisis. The need for substantial tax hikes and spending cuts is evident, but with no indication of a balanced budget in sight, the U.S. finds itself on a precarious fiscal trajectory.