US deficit grows to $906b after moves to cut taxes

WASHINGTON • The United States Budget deficit grew to US$666 billion (S$906 billion) in fiscal year 2017, which has just ended, according to official data, after lawmakers took a step towards enacting US$1.5 trillion in tax cuts.

The deficit climbed 13.6 per cent from a year ago, or by US$80 billion, with much of the nearly US$4 trillion the US government spent last year associated with caring for the country's ageing population.

The deficit now accounts for 3.5 per cent of gross domestic product, up from 3.2 per cent last year.

"Growth in spending outpaced growth in tax receipts for the second year in a row as a result of historically subpar economic growth," said the Treasury Department on Friday.

But the deficit came in US$36 billion lower than forecast halfway through the fiscal year, which ended on Sept 30, officials said.

"Today's Budget results underscore the importance of achieving robust and sustained economic growth. Through a combination of tax reform and regulatory relief, this country can return to higher levels of GDP growth, helping to erase our fiscal deficit," said Treasury Secretary Steven Mnuchin.

"These numbers should serve as a smoke alarm for Washington, a reminder we need to grow our economy again and get our fiscal house in order. We can do that through smart spending restraint, tax reform and cutting red tape," said Mr Mick Mulvaney, director of the Office of Management and Budget.

Spending grew 3.3 per cent to US$3.98 trillion, while revenue fell 0.9 per cent to US$3.32 trillion, as the total federal debt rose to US$14.67 trillion.

Higher outlays for social security, Medicare (a government medical programme for the elderly), and Medicaid (for low-income and disabled Americans) as well as interest on the public debt all contributed to the rise in outlays. Spending on the military rose 1 per cent to US$569 billion, and 45 per cent in education to US$112 billion.

The US Senate narrowly passed a 2018 federal Budget on Thursday that includes special instructions that allow Mr Trump's party to pass historic tax reforms with a simple majority vote.

Fiscal conservatives worry that a tax cut will add to the national debt, but the Trump administration argues that it will give businesses more money to create jobs as well as boost tepid economic growth, eventually turning into higher tax receipts.

The Tax Policy Centre, a Brookings Institution-Urban Institute joint venture, said the reforms will cost US$2.4 trillion in lost federal revenues during their first decade, which raises questions about how they will be financed.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Sunday Times on October 22, 2017, with the headline 'US deficit grows to $906b after moves to cut taxes'. Print Edition | Subscribe