The U.S. federal budget deficit will skyrocket to a record $1 trillion by the end of the fiscal year this month -- two years faster than anticipated -- because of the Republican Party's much-maligned Tax Cuts and Jobs Act of 2017.
The non-partisan Congressional Budget Office (CBO) first expected the deficit to hit this unheard of a milestone in 2020. CBO credited the unwelcome spike in the deficit to the new Republican tax law that slashed the corporate tax rate from 35 percent to 21 percent starting in this year but without replacing this lost revenue from other sources. It also said the jump will be caused by increased government spending.
Together both these unwelcome factors will explode the deficit. Federal expenditures rose seven percent at the end of 11 months of the fiscal year while tax revenue inched upward by only one percent. The seven percent rise translates into an increase of $222 billion, or 32 percent, in the first 11 months of fiscal 2018 compared to the same period in 2017.
As expected, corporate taxes plummeted, but by an unexpectedly massive 30 percent this fiscal year. CBO said this was due to the lower corporate tax rates championed by the GOP.
The government is now relying on individual income taxes to keep it afloat. Individual income and payroll taxes climbed four percent as rising wages - mostly due to more people having jobs -- offset a lower withholding tax rate.
By August, the deficit soared 32 percent year-on-year to reach $895 billion. The deficit in August alone came to $211 billion, nearly double the deficit year-on-year.
CBO said the other main causes for the massive deficit were the 25 percent jump the net interest on public debt; the 10 percent hike in defense spending; a seven percent increase in Medicare benefits and a five percent rise in Social Security.
On the other hand, federal receipts fell by three percent, with corporate taxes dropping by $5 billion. Revenues from income and payroll taxes rose marginally.
Spending on Social Security and Medicare rose four percent as more Baby Boomers retire. Outlays on net interest on the debt jumped 19 percent due to a higher rate of inflation triggering more payments to inflation-protected securities holders.
Democrats, who have repeatedly warned the GOP tax cuts would explode the deficit, were angered by the ballooning deficit and warned Donald Trump and the Republicans from cutting Social Security and Medicare to balance the budget.
Rep. Adam Schiff (D-CA) said opponents to the tax cuts law knew the tax cuts for the wealthy would explode the deficit, and now it has. "Still, Trump and (Paul) Ryan argue for massive cuts to Medicare and Social Security, saying we don't have the money. Not a chance."
The exploding deficit also belied Republican claims the massive corporate tax cuts are paying for themselves.
