Oct 21, 2022 - Economy

Federal deficit was cut in half last year, Treasury Department says

Photo: Shawn Thew/EPA/Bloomberg via Getty Images

New numbers from the Treasury on Friday give the Biden administration something to brag about, for now: The federal budget shortfall was chopped in half in the last fiscal year (which ended last month), falling to $1.38 trillion.

Driving the news: Federal outlays were $6.3 trillion, down more than 8% from the previous year. That drop largely reflects the end of COVID-related government programs, like topped-up unemployment benefits.

  • The cost of Biden's student loan forgiveness program, however, caused the deficit for the month of September alone to spike to $430 billion, up from $65 billion in September 2021.

Meanwhile, government revenues rose by $850 billion to $4.9 trillion. That rise is due, in part, to higher individual income taxes on the back of a strong labor market and strong wage gains for workers.

What they're saying: In a statement, Treasury Secretary Janet Yellen said the figures demonstrate President Biden's "commitment to strengthening our nation's fiscal health."

The intrigue: The fiscal road ahead looks more troubling. For one, the economy is cooling down, and many economists expect the unemployment rate to rise in the year ahead. So while the labor market caught a tailwind in the last fiscal year, headwinds may appear in 2023.

  • Perhaps more troubling is what we discussed above: Interest rates are rising, putting upward pressure on the cost of federal interest payments.
  • Earlier this year, the Congressional Budget Office estimated interest costs could top $1 trillion by 2032 — or 3.3% of GDP, more than double its share this year.
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