Biden falsely takes credit for reducing the deficit
The deficit will fall this year, but not because President Biden took efforts to cut it.
In his first State of the Union address, President Joe Biden stated that he would be "the only president ever to cut the deficit by more than one trillion dollars in a single year" and that "by the end of this year, the deficit will be down to less than half what it was" before he took office. While the President's math is accurate, his claims of credit for reducing the deficit are misplaced and lack important context. Fact checkers, if honest, would rule Biden’s claims of credit ‘misinformation’ and false.
The Fiscal Year 2022 deficit is slated to decline dramatically relative to 2021, and the debt-to-GDP ratio is likely to fall by the end of the fiscal year as well. But that is to be expected when most of the $5 trillion in COVID relief was disbursed in 2020 and 2021 while revenues sank due to the slowdown in economic activity.
Importantly, the trend of declining deficits is only true for the next couple of years. With the structural imbalance between spending and revenue growing over the medium and long terms, deficits will grow for most of the next decade and worsen thereafter as our nation's trust funds deplete.
The deficit will fall by more than $1 trillion this year, but it is not because President Biden took efforts to cut it.
The national debt will still grow by more than $1 trillion this year and nearly $13 trillion over the next decade. Now is not the time to take credit for fiscal responsibility; instead, it would be better for policymakers to come up with a plan to reduce deficits and the debt over the coming years such that debt is on a sustainable downward path. That will take revenue increases, spending cuts, and tough choices on changes to entitlement programs. We owe it to our children and grandchildren not to lose sight of the progress that needs to be made.
Some of our most important federal programs are financed through dedicated revenue sources and managed through federal trust funds. Over the next decade, these trust funds face a combined $3.6 trillion shortfall. Without action, people who rely on those programs will face abrupt across-the-board cuts.
· The Highway Trust Fund is estimated to be insolvent by 2027 with a projected spending cut of 48%.
· The Medicare Hospital Insurance Trust Fund is estimated to be insolvent by 2026 with a projected spending cut of 9%.
· Social Security Old-Age & Survivors Trust Fund is estimated to be insolvent by 2033 with a projected spending cut of 24%.
· Social Security Disability Trust Fund is estimated to be insolvent by 2057 with a projected spending cut of 9%.
What is a federal trust fund?
A federal trust fund is an accounting mechanism the government uses to ensure certain types of tax revenue are dedicated to specific spending programs. For example, when the government takes Social Security taxes out of your paycheck, it credits the money to the Social Security Trust Fund. The Same thing happens with your Medicare Hospital Insurance tax. The federal gas tax you pay at the pump gets credited to the Highway Trust fund.
The trust funds contain what are basically IOUs—an account on paper of the taxes credited to them. Meanwhile, the tax money itself flows into the US Treasury, where it is used to pay current benefits or to help pay for other government spending.