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By: The Editorial Board – wsj.com – February 9, 2023
President Biden boasted during his State of the Union address about cutting the deficit by a record $1.7 trillion. His putative conversion into a born-again deficit cutter is belied by this week’s Congressional Budget Office federal budget report for January, which shows the deficit has doubled in the first four months of this fiscal year.
CBO reports that the budget deficit from October through January swelled to $522 billion from $259 billion in the same period last year after adjusting for a timing shift in payments. Receipts are tracking $43 billion lower than last year, mostly owing to reduced individual income taxes, while spending is running $220 billion higher.
The Federal Reserve’s remittances to the Treasury from earnings on its portfolio of securities have decreased to less than $1 billion from $37 billion. For most of the last decade, the Fed was a profit center for Treasury owing to the interest paid on its accumulation of Treasurys and mortgage-backed securities. But now the Fed is paying higher interest on bank reserves. Meantime, net interest payments on U.S. debt increased by $58 billion in the first four months of the year.
Entitlement spending has grown by $76 billion owing to inflation adjustments and the Administration’s public-health emergency declaration, which has prevented states from returning to their pre-pandemic Medicaid policies. The Administration plans to end the emergency in May, but many people removed from Medicaid will be eligible for expanded Affordable Care Act subsidies.
Refundable tax credits fell $49 billion in the last four months as Covid payments expired, but this decline was more than offset by $38 billion to bail out union multi-employer pensions and $18 billion in student loan executive actions that increased eligibility for the Public Service Loan Forgiveness program, among other things. The CBO report doesn’t account for Mr. Biden’s $400 billion student loan write-off.
The Administration’s executive and regulatory actions could add more than $1 trillion to the national debt, none of which has been appropriated by Congress. As for Mr. Biden’s claims of slashing the deficit by $1.7 trillion, that’s nearly all from expiring Covid payments.
The budget deficit more than tripled to $3.14 trillion in fiscal 2020 owing to numerous Covid bills. It fell slightly to $2.7 trillion in 2021 because individual and corporate income tax revenue surged—not because of spending discipline. As pandemic welfare payments expired, the deficit last year clocked in at $1.4 trillion.
During his State of the Union, Mr. Biden blamed deficits on his predecessor. But the deficits during the first three years of the Trump Presidency totalled $2.5 trillion—less than in the first year of Mr. Biden’s. The deficit is on a path to increase again this year owing to the infrastructure bill, Inflation Reduction Act (IRA) and end-of-year omnibus blowout.
Budget savings Democrats claimed from the IRA are fanciful while the spending will exceed projections. CBO estimated that tax credits for green-energy manufacturing, including lithium-ion batteries, would cost $30.6 billion over 10 years. But a recent estimate from Benchmark Mineral Intelligence says battery subsidies alone will cost $136 billion.
Mr. Biden on Tuesday called on Congress to make permanent the enriched ObamaCare tax credits that are scheduled to expire at the end of 2025 and pass paid family leave, among other new entitlements. He hopes to lure Republicans into trading these for an extension of the 2017 individual income tax cuts, which are also set to expire at the end of 2025.
The President is spinning a fiscal fantasy, and that’s if there’s no recession.
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