The budget deficit grew $2.1 trillion during the first 8 months of the U.S. fiscal year, which runs from October 1 to September 30 of the following year. According to Treasury Department data, government spending grew $4.7 trillion from October to May.
On the other hand, federal revenues grew by 29%, or $2.6 trillion, due to higher individual income tax and corporate tax revenues.
Stimulus checks from the pandemic care plans of both Congress and President Joe Biden, as well as unemployment benefits, nutritional assistance, small business assistance and federal government mortgage coverage guarantees, were primarily responsible for the increased shutdown in the U.S. economy.
By May, the deficit in the U.S. economy had surpassed $132 billion, one-third of what it was a year ago when the deficit reached $596 billion because of pandemic care.
With the pandemic and three stimulus plans, the U.S. government has made the largest expansion of federal spending since World War II, expanding the deficit in ways not seen for nearly 80 years and massively increasing the public debt, which now exceeds 100% of GDP.
Since the 2008 crisis, the federal debt has steadily expanded, a pace accelerated by former President Barack Obama’s health care reform and former President Donald Trump’s tax cuts.
The deficit and the growing debt will continue to be the focus of debate in Congress and opposition from the GOP to the Biden administration, which is seeking approval for another trillion dollars to implement its infrastructure plan currently being negotiated by a bipartisan committee.
Biden administration proposes tax increase on high-income individuals and corporations to minimize budget deficit
President Biden, in order to minimize the gap between deficit and revenue that his spending plans would imply, has proposed increasing taxes on individuals with incomes over $400,000 from 37% to 39%, increasing the tax on capital gains over one million dollars from 20% to 43.5%, and raising the corporate tax rate from 21% to 29%; however, this last proposal could be withdrawn by the Democratic establishment to gain the support of some GOP congressmen for the infrastructure plan being debated on Capitol Hill.
The Biden administration also seeks to attack tax avoidance by large technology companies such as Amazon through a minimum corporate tax of 15%, which was accepted by the other G7 member countries (Germany, France, United Kingdom, Italy, Japan and Canada). Soon the U.S. Government will push for the other countries in the world to implement this global minimum tax and thus avoid capital flight.
The Congressional Budget Office estimates that by 2031 the U.S. debt will exceed 107% of GDP, not including the impact of Biden’s stimulus plan. For its part, the White House forecasts that there will be a substantial decrease in interest payments in the coming years due to the expected accelerated growth of the U.S. economy.