“Let me remind you again: reduce the federal deficit,” Biden said in a speech Wednesday. “All the talk about the deficit from my Republican friends, I like it. I cut it by $ 350 billion in my first year in office. And we are on track to reduce it by the end of September by another $ 1 trillion – $ 500 billion – the biggest drop so far. ”
Biden’s figures for both fiscal 2021 (which lasted until last September) and the current fiscal 2022 (which continues next September) are accurate, although the $ 1.5 trillion figure for 2022 is a forecast . But some fiscal experts say Biden is distorting reality when he says he is personally responsible for reducing the deficit.
The deficit was lower in the Biden administration than at the end of President Donald Trump’s term. But the deficit is greater in the Biden administration than Congress’s non-partisan federal budget service predicts it will be if the Biden-era federal government adheres to the laws that were in force when Trump left office in early 2021. “The administration and Congress have undoubtedly led to higher deficits, not smaller ones,” said Dan White, senior director of Moody’s Analytics, an economic research firm whose analysis Biden has repeatedly highlighted in his remarks. is that the administration has proposed some initiatives to reduce the deficit, but so far none of these initiatives have been seriously considered. “
Smaller deficit than before – but larger than expected
The deficit of approximately $ 2.8 trillion in fiscal 2021, during which Biden was in office for more than eight months, was about $ 360 billion lower than the deficit of approximately $ 3.1 trillion in fiscal 2020, the last Trump’s full fiscal year.
The $ 360 billion drop is certainly significant. However, the Congressional Budget Service had estimated at the beginning of Biden’s term that the fiscal deficit in 2021 would fall by more than $ 870 billion if the Biden administration did not pursue a new policy.
The Biden administration has introduced a new policy, including a massive pandemic relief package. Mark Goldwein, senior vice president of the Committee on Responsible Federal Budget, an organization that advocates deficit reduction, said in an interview that Biden’s claims of personal deficit reduction are an “almost bizarre world,” a reversal of reality. The deficit would fall much more “if President Biden came to power and did nothing,” he said. It is important to note that Congress has the power of the bag in the federal government. Presidents propose budgets, but Congress usually ignores them in favor of its own spending preferences. So both guilt and merit must be shared. Goldwein said the Biden administration had “very good ideas” to reduce the deficit in the future. But so far, he said, Biden has “done many things that have increased deficits” – from signing the pandemic relief package to signing a basic bipartisan infrastructure law to increasing the benefits of food stamps to extending the pandemic pause. Trump’s era on federal student loan repayments – and has not passed any legislation to directly reduce deficits.
The outgoing cost of a pandemic was a major factor
So why, then, has the federal deficit even decreased under Biden, even if it was higher than originally anticipated at the time Biden took office?
There are a number of factors that play a role – including economic recovery, which White, Goldwyn and others say Biden can rightly take some credit for. But the main factor is that the temporary cost of alleviating the pandemic is coming to an end, reducing federal spending from extremely high levels. There has been an explosion in Trump’s short-term spending since the pandemic hit in 2020. Combined with declining tax revenues, largely caused by the pandemic-related economic collapse, these temporary spending has pushed the deficit to an all-time fiscal 2020 record. – Approximately $ 3.1 trillion, more than three times the deficit of the previous year.
So a fall from unprecedented deficit levels in 2020 has always been very likely. And even a large drop from these levels in 2020 does not mean that the deficit is low by historical standards.
The deficit of approximately $ 2.8 trillion in fiscal 2021 is the second largest deficit in US history in nominal terms and, according to Goldwein, the sixth largest percentage of gross domestic product. If the 2022 fiscal deficit ends up being $ 1.5 trillion lower than the 2021 fiscal deficit, as Biden rightly noted that the Treasury now expects, it will still be among the largest ever. .
And even with a $ 1.5 trillion decline from fiscal 2021, the fiscal 2022 deficit is still expected to be significantly higher than the deficit projected by the Congressional Budget Office for fiscal 2022 at a time when Biden took office. Achieving a higher-than-expected deficit in fiscal 2021 provided more room for a dramatic-sounding deficit reduction in fiscal 2022.
The quick rebound also helped
The deficit has a cost component and a revenue component. And it would be fair for Biden to boast that he is investing more revenue in the state treasury through economic growth.
Biden’s $ 1.9 trillion pandemic relief bill not only boosted government spending, but also helped deliver an unusually fast recovery from the 2020 disaster – a recovery that generates additional tax payments, as well as cuts in spending on unemployment benefits.
Joel Friedman, senior vice president of federal fiscal policy at the Liberal Brain Trust Center for Budget and Political Priorities, said in an email that the deficit fell under Biden in part due to the expiration of pandemic measures, but also “due to strong economic growth.” Friedman said he was “linked” to the pandemic measures.
The “strong” federal response to the pandemic not only reduced difficulties, Friedman said, but helped make the Covid-19 recession the shortest in history and helped deliver economic recovery that reduced unemployment to 3.6 percent and increased revenue. “.
The deficit has widened under Trump
While claiming that the deficit was falling during his own presidency, Biden also focused on Republican fiscal governance, saying in a speech Wednesday that the deficit “increases every year with my predecessor, before the pandemic and during the pandemic.” .
This part is true. Trump’s tax cuts and other policies have led to sharp increases in deficits even before Covid-19. The deficit was $ 439 billion under President Barack Obama in fiscal 2015 and $ 587 billion in fiscal 2016, Obama’s last full fiscal year. It rose to $ 666 billion in fiscal 2017, Trump’s first partial fiscal year in office; rose again to $ 779 billion in fiscal 2018; then rose again to $ 984 billion in fiscal 2019, before the pandemic tripled in fiscal 2020.
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