Deficit US

source: Le Monde

author Arnaud Leparmentier

translation: doxa-louise

The American Budgetary Deficit at its Hightest since 2012

For the year ending September 2018, the deficit has soared to 3,9% of the

United States Gross Domestic Product.

The yearly annual American deficit reached 779 billion dollars (672 billion euros)

for the year ending September 30, 2018, thus 3,9% of Gross Domestic Product

(GDP) as opposed to 3,5% the previous year (666 billion dollars). That is a large

number, given ten years of a strong economy. Donald Trump’s America should

break through the 1 000 billion deficit - 5% of current GDP - before the next 

presidential election in 2020, according to the New York Times.

In any event, even if it is not quite as bad as expected, the 2018 deficit is the highest 

since 2012 and can be explained by higher expenses and a stagnation in 

revenus.

These only progressed by 0,4% because of the fiscal reform voted at the end of 

2017 by Congress: it called for higher taxes on incomes limited to 1% but more 

importantlylower corporate taxes by 31%. The latter saw their nominal taxation 

rate fall from 35% to 21%, as well as a total deductibility of investments. In a 

period of sustained growth and given full-employment (3,7% unemployment on 

the active population), tax revenues should have been stronger.

Expenses, however, went up by 3%. Debt servicing, now at approximately 20 000 

billion dollars, went up by 14% (370 billion dollars). Followed by higher military 

expenses worth 6% (700 billion dollars) and social security and public health 

(+4%, 1 950 billion) because of, primarily, an aging population.

Letting Go of all Budget Retraint

At least the American President did keep one promise, that of having less government. 

The expense rate for the Federal State went from 20,7% to 20,3% in one year while

fiscal revenue went down even more, going from 17,2% to 16,5%.

The figures confirm the abandon by Republicans of all budget restraint, while they 

had combatted without fail the budgetary stimulus wanted by Barack Obama after  the

economic downturn caused by the financial crisis of 2008. The tendency is toward yet more loosening next year, where midterm elections are not expected to be fought

with a return to orthodoxy: if they win, the Democrats might well ask for an investment 

program - that promised by Donald Trump in his presidential run being nowhere to be 

seen - while if they keep control of Congress, Republicans might want to make 

permanent if not go further with the tax cuts agreed on in 2017.

Revenues from border tariffs went up by 6,7 billion dollars ( approximately 20%), to reach

41,3 billion. Easy to see, the impact on GDP is a mere 0,034% of GDP. Because the

new measures were late being voted but also because they are not very significant in 

macroeconomic terms. Their true import will be felt in a few years’ time on the 

productivity of enterprise, if these tariffs impact investment in enterprise.

Notwithstanding, results remain a calamity for the trade deficit, getting worse because 

of the good health of the American economy and strong consumption by households. 

For the first eight months of the year, it has gone from 530 to 574 billion dollars 

( about 4,3% of GDP) while the deficit in the balance strictly for goods and services 

worsened slightly going from 360 to 391 billion dollars. As recently noted by the 

Los Angeles Times, Donald Trump no longer talks much about trade deficits: ’No 

doubt because they are getting worse.’