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Thomas Gallatin / October 18, 2018

Deficit Soars Even as Income Tax Revenue Hits Record High

The $779 billion deficit is the highest since the heady days of “Hope ‘n’ Change” in 2012.

We’ve said it before and we’ll say it again: The U.S. government has a massive problem with overspending. The numbers are in for the 2018 fiscal year, and the government overspent its revenue by a whopping $779 billion. Recall that last year the deficit came in at $666 billion and the estimates for next year look likely to surpass this year’s. The 2018 deficit is the highest since the heady days of “Hope ‘n’ Change” in 2012, when it topped out at over $1 trillion.

Even as record individual income tax revenue has been collected this year, the overall tax revenue filling government coffers has remained essentially flat. The reason is that while the Republican tax cuts on corporations have effectively ignited a stagnant economy, they have yet to cause enough growth to offset revenue lost to the lower tax rate. That said, even under the previous higher corporate tax rate, the net revenue would only amount to $70 billion more, still leaving a deficit of over $700 billion.

So, irrespective of what Democrats may claim, the real problem is not the Republican tax cut; it’s soaring spending. And the fact of the matter is that Democrats would be even worse on spending with their calls for Medicare for All, free college, and whatever other income-redistributing entitlement they can concoct.

This year’s deficit increase has been primarily due to a couple of factors. First, there was a 6% increase in military spending, per President Donald Trump’s promise to build up a military that Barack Obama decimated. That increase came, as Trump noted, with concessions in other areas for Democrat spending priorities. Second, and far more critical, was a 4% increase in Social Security spending due to the increasing number of retiring Baby Boomers. Social Security currently accounts for 23% of the entire budget. Add Medicare and Medicaid and we’re talking 46% of the budget. So that 4% increase matters a lot.

Did we mention that Social Security and Medicare face a cash deficit of $82 trillion over the next 30 years? Worse, neither party will touch it.

Acknowledging the deficit problem, the administration is also encouraging patience. Kevin Hassett, chairman of the White House’s Council of Economic Advisors, states, “The deficit is absolutely higher than anyone would like. [However], as you watch our next budget come out — and you’ll start to see things in the next few weeks — then you’ll see a much more aggressive stance” in tackling spending.

Trump has never been an ideological fiscal hawk, yet due to his business instincts he has been impressive in his efforts to cut waste in Washington via deregulation. He addressed the issue Wednesday, declaring, “I have a Cabinet meeting in a little while and we are going to ask every secretary to cut 5% for next year.” That said, Republicans need to get serious about cutting spending — specifically the entitlement state, which is the true driver of our debt. Ignoring this growing problem will only prove to be disastrous in the long run.

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