Jim Tankersley, an economic policy correspondent for The New York Times, delves into the alarming rise of the U.S. federal deficit, now nearing $2 trillion. He discusses how this deficit contradicts the ongoing economic growth, highlighting the negative feedback loop created by rising borrowing costs. Tankersley contrasts Republican and Democratic approaches to managing the deficit and emphasizes the complexities of government budgeting amidst rising interest rates. The conversation offers insight into the challenging choices lawmakers face in addressing these pressing fiscal issues.
The US government's federal deficit has doubled to nearly $2 trillion over the past year, causing concern about the country's ability to borrow money and cover the shortfall, leading to increased borrowing costs.
A significant drop in tax revenue, particularly due to factors such as capital gains taxes and lower tariff revenue, is the major reason for the substantial increase in the federal deficit.
Deep dives
The Growing Deficit: Doubling to $2 Trillion
The podcast episode highlights the US government's report that the federal deficit doubled to nearly $2 trillion over the past year. This massive deficit, which is twice the size of the previous year's deficit, is a cause for concern, as it is unusual for deficits to increase during a period of economic growth. The episode explores the implications of such a large deficit and how it is impacting the country's ability to borrow money to cover the shortfall, leading to increased borrowing costs. These growing borrowing costs could create a problematic cycle where more borrowing is needed to pay off the interest, further exacerbating the deficit. The episode emphasizes the need for policymakers to address the deficit issue and make tough choices regarding taxation and spending to avoid spiraling into a deeper fiscal crisis.
Tax Revenue Drop: The Main Cause of the Deficit
The podcast explains that the major reason for the substantial increase in the deficit is a significant drop in tax revenue. Despite a growing economy, tax revenues fell by approximately 9% last year. The episode delves into various factors contributing to this decline, such as capital gains taxes and lower tariff revenue. Although government spending did not increase considerably, the substantial reduction in tax revenue led to the widening deficit. This highlights the need to address the tax problem as a crucial aspect of tackling the deficit.
The Impact of High Borrowing Costs on the Deficit
The podcast discusses the second challenge associated with the deficit: the rising costs of borrowing money to cover the deficit. The government issues treasury bonds to borrow money, and historically, low interest rates have kept borrowing costs low. However, the current interest rate on a 10-year treasury bond is around 5%, significantly higher than in previous years. If these higher borrowing costs persist, it will lead to increased interest payments, forcing the government to borrow even more money to cover those costs. This creates a worrisome cycle of escalating deficits and higher borrowing costs. The episode highlights the potential consequences of such a scenario, including reduced funding for critical programs and infrastructure projects.
Over a year, the federal deficit — the gap between what the U.S. government spends and what it earns — has doubled, to nearly $2 trillion.
That figure seems to validate the worries of congressional Republicans about government spending, which have been at the center of the messy fight over who should be House speaker.
Jim Tankersley, who covers economic policy at the White House for The Times, explains the Republicans’ concerns — and why their plans would not come close to solving the problem.
Guest: Jim Tankersley, an economic policy correspondent for The New York Times.
For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.
Unlock full access to New York Times podcasts and explore everything from politics to pop culture. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode