The $1.4 trillion deficit reduction was the largest improvement in the US fiscal position in a single year.
The U.S. government reported Friday that its fiscal 2022 budget deficit fell by half from a year earlier to $1.375 trillion, on the back of dwindling COVID-19 aid spending and record receipts fueled by a hot economy , but the cost of forgiving student loans limited the reduction.
The U.S. Treasury Department said the $1.4 trillion deficit reduction was still the largest improvement in the U.S. fiscal position in a single year, as revenue hit a record $4.896 trillion, up from 850 $ billion or 21 percent from fiscal 2021.
President Joe Biden touted the deficit reduction in remarks in the White House and chastised Republicans for talking but doing nothing to reduce the deficit. He also said his administration has reduced the deficit while increasing spending on infrastructure and expanding benefits for middle- and low-income Americans.
“You know, we’ve transitioned from a historically strong economic recovery to steady and stable growth while reducing the deficit,” Biden said.
Spending for fiscal 2022, which ended September 30, fell a record $550 billion, or 8 percent, from the prior year to $6.272 trillion. But spending for September, the final month of the fiscal year, included acknowledging $430 billion in costs from the Biden administration’s plan to forgive up to $20,000 in student debt for former college students who now earning less than $125,000 a year and less than $250,000 for married couples.
Much of the cost of debt relief was booked in September, although loan repayments would likely have taken several years.
The move brought September’s fiscal deficit to $430 billion, more than six times last year’s deficit of $65 billion in September. In most years, September is a surplus month due to the quarterly payment of corporate and personal taxes.
The Congressional Budget Office estimated the plan would cost about $400 billion. It also includes extending a COVID moratorium on all student loan payments through the end of 2022, resulting in around $21 billion in additional budgetary costs.
Non-government budget analysts have estimated that the plan would undo a much-vaunted deficit reduction in the recently passed Democrats’ climate, health and finance bills.
US Treasury Secretary Janet Yellen told reporters that the Biden administration is pursuing “credible fiscal policies” despite the unfunded student debt relief that was a campaign promise by Biden.
“I see our debt on a responsible path,” she said, adding that net interest on the debt as a percentage of gross domestic product (GDP) is expected to rise to only about 1 percent, a “low” historical level.
Federal finances improved over the past 12 months as the unemployment rate fell to 3.5 percent from 4.7 percent in September 2021. Job gains allowed tax revenues to rise 21 percent year-on-year, while overall government coronavirus-related spending fell 8 percent and aid has faded.
However, sales gains in September began to slow from previous months, rising just 6 percent year over year to $488 billion. And the CBO forecasts revenue will continue to slow in the coming years as the economy continues to slow amid higher Federal Reserve interest rates. Rising interest costs will also eat up a larger part of the federal budget, the non-partisan tax advisor predicts.
In May, the Congressional Budget Office expected the federal deficit to narrow in 2023 and then grow to $2.25 trillion in a decade in the coming years.