US Posts $1.8 Trillion Annual Deficit, Highest Outside of Covid

(Bloomberg) — The US government’s budget deficit hit its highest since the Covid pandemic years in 2024, propelled by increased debt interest costs and higher Social Security and defense spending — which more than offset a boost in tax revenues.

The shortfall for the fiscal year, which ended Sept. 30, came to $1.83 trillion, up from $1.7 trillion the previous year and the largest on record aside from the 2020 and 2021 fiscal years, US Treasury data released Friday showed.

Treasury officials highlighted that the widening was largely due to accounting for the Biden administration’s broad student debt relief plan, which the Supreme Court canceled in mid-2023. That cancellation effectively reduced the official deficit for that year, making this year’s look bigger by comparison. Taking that impact out, and adjusting for calendar differences, the deficit shrank 4%, Treasury officials said Friday.

Nevertheless, the figures for both years exceeded 6% of gross domestic product, an unusually high burden outside of economic recessions or world wars. This year’s ratio was 6.4%, after 6.2% in 2023.

Social Security outlays climbed by $103 billion, thanks to an increased number of beneficiaries along with cost-of-living increases. Defense went up by $50 billion.

Both those categories were dwarfed by interest paid out by the Treasury on the nation’s gargantuan debt. Those costs surged by $254 billion, to $1.1 trillion for the year, marking an increase of 29%. At about 3.93% of GDP, that burden was the highest since 1998.

Revenues climbed by 11% over the fiscal year, strengthening mainly due to a boost in tax receipts. Strong job and wage gains were a factor, along with the receipt of taxes that had been deferred from 2023 due to natural disasters, Treasury officials said.

The outsize deficit could complicate spending plans by either candidate in next month’s presidential election. With Congress heading for a narrow partisan split, decisions loom in 2025 on what to do with the expiration of tax cuts enacted during the Trump administration in 2017, and the reinstatement of the debt ceiling.

Treasury Secretary Janet Yellen, in a statement accompanying the budget figures, said that the Biden administration’s budget proposals would reduce the deficit by $3 trillion over time, in part through tax increases on corporations and the wealthiest Americans.

Most economists see debt continuing to climb under either presidential candidate. The Committee for a Responsible Federal Budget estimates Kamala Harris’s economic plan would increase the debt by $3.5 trillion over a decade, while Donald Trump’s would sending it soaring by $7.5 trillion.

The government could see some relief next year as the Fed begins to lower borrowing costs. The weighted average interest rate for total outstanding debt by the end of September was 3.32%, at roughly 15-year highs, but down slightly from the month before — the first decline in nearly three years. 

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