Detailed Report on the U.S. Federal Budget Deficit and its Impacts

This report examines the U.S. Federal Budget Deficit, analyzing its historical trends, current status, and future projections. The report begins by defining a budget deficit and its occurrence in the United States since 2001. It highlights the significant increase in the deficit in recent years, driven by declining tax revenues due to tax reforms and rising government spending, including increased spending on defense, health, and welfare programs. The analysis covers the impact of the Republican tax reform of 2017 and the Bipartisan Budget Act of 2018. The report also discusses the potential economic consequences of a rising budget deficit, such as increased government borrowing, higher inflation, and rising cost of living. The study recommends government spending cuts and reductions in foreign debt to mitigate the deficit and stabilize the economy. The conclusion emphasizes the need for fiscal policies that control money supply and stabilize interest rates.

Running head: BUDGET DEFICIT 1
The U.S. Federal Budget Deficit
Student’s Name:
Institutional Affiliation

BUDGET DEFICIT 2
The U.S. Federal Budget Deficit
The government of the United States make a budget annually. The budget is a
detailed plan that describes the acquisition and use of financial and other resources over some
time period in the future. It reflects government’s priorities and how they are going to be
financed. Government projects are majorly financed by tax collections and government
borrowings. A budget deficit occurs when the tax collected cannot fully finance the budget
(Tankersley, 2018). Therefore, the government has to borrow more funds from domestic and
international institutions. A budget surplus on the contrary occurs when taxes collected exceed
the financing needs of the budget. This essay discusses the Federal budget deficit in the United
States in the recent years.
The United States last recorded a trade surplus in the 2001 fiscal year. Afterwards, the
country has witnessed a continuous budget deficit leading to a heated discussion over the
country’s budget projections. The budget deficit in 2009 was 9.8 percent of the country’s gross
domestic product (GDP). By financial year 2018, the budget deficit had declined to 3.8 percent
of GDP (Grennes, Fan & Caner, 2019). In 2017, the budget deficit was $666 billion. In 2018,
the budget deficit rose to $ 779 billion which was an increase of 17 percent from 2017. In the
first quarter of 2019, the budget deficit grew by 77 percent compared to the same period in 2018
(Tankersley, 2018). The congressional budget office predicts a continued rise in budget deficit in
the future. Its estimates indicate that, budget deficit will increase from 3.9 percent in 2018 to 9.5
percent in 2048.
The budget deficit rises when the rate of government spending is higher than the rate
of growth in government revenue. The rise in budget deficit in the recent years is due to a
significant decline in tax revenues and rising government spending. The Republican tax reform

BUDGET DEFICIT 3
of 2017 is a significant contributor to the rising budget. The reformed tax laws sharply reduced
corporation and individual taxes. The republican tax reforms reduced corporate tax rate from 35
percent to 21 percent leading to a decline in corporate taxes collected to historical lows (CRFB,
2018). The rise in government expenditure also contributed to the rising budget deficit. The
Bipartisan Budget Act of 2018 opened legislative paths for greater spending. The act raised
spending limits for defense, health, and welfare programs. The law also raised the debt ceiling
and hence providing an avenue for greater government borrowing. The Congressional Budget
Office predicts that increased spending in social security and healthcare programs, and
increasing interest on national debts will drive debt deficit high in the next thirty years.
Increasing budget deficit is a matter of great concern. It is a major driver of increasing
government borrowing. Rising budget deficit also increases the aggregate demand in the
economy which might lead to higher levels of inflation (Grennes, Fan & Caner, 2019). The rise
in inflation will resultantly lead to an increase in cost of living. This study recommends that
government reduces spending. The decline in spending will reduce the budget deficit since
economy will be able to run within the limits of tax collected. The government should also
consider cutting down on foreign debt. Reducing government debt will lead to a decline in
government spending. The reduction of government borrowing and reduction of government
expenditure will result in to a decline in rate of growth of GDP. The reduction of government
spending is a fiscal policy that reduces the rate of inflation through reduction of controlling
money supply. The interest rates will decline since inflation rates will stabilize causing an
efficiency of monetary policies.

BUDGET DEFICIT 4
References
CRFB. (2018). Treasury: 2018 Deficit was $779 Billion. Retrieved from
https://www.crfb.org/blogs/treasury-2018-deficit-was-779-billion
Grennes, T. J., Fan, Q., & Caner, M. (2019). New Evidence on Debt as an Obstacle for US
Economic Growth. Mercatus Research Paper.
Tankersley, J. (2018). How the Trump Tax Cut Is Helping to Push the Federal Deficit to $1
Trillion. Retrieved from https://www.nytimes.com/2018/07/25/business/trump-corporate-
tax-cut-deficit.html