Federal Deficit Soars in FY2024 Despite Record Tax Revenue 12

 in News / Tax Lawyer by (updated 360 days ago)

The federal government’s budget deficit reached a staggering $1.8 trillion in fiscal year 2024, a significant increase from previous years. This figure, while slightly lower than initial projections, marks the third-largest deficit in history, surpassed only by the pandemic-era deficits of 2020 and 2021.

A primary driver of this deficit is the escalating cost of servicing the national debt. Interest payments on the public debt surged by 34% to $950 billion in FY2024, now outpacing defense spending as the second-largest federal expenditure. This trend is expected to continue, with interest payments as a percentage of GDP reaching new highs in the coming fiscal year.

While tax collections reached record levels, they were insufficient to offset the rising spending. Corporate income taxes saw a remarkable 26% increase, surpassing previous highs. However, the growth in tax revenue was outpaced by the expansion of federal spending, particularly on social programs and refundable tax credits.

The administration’s proposed student loan forgiveness policy, if implemented, could further exacerbate the deficit by adding an estimated $100 billion or more to the annual shortfall.

Overall, the federal government’s spending increased by 10% in FY2024, exceeding the 20-year average. This growth, coupled with the rising cost of debt service, has contributed to the widening deficit.

The increasing national debt raises concerns about long-term fiscal sustainability and the potential for future economic challenges. Addressing this issue will require careful consideration of spending priorities, tax policies, and strategies to reduce the debt burden.

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