US deficit widens even as economy grows, Latest Business News - The New Paper

US deficit widens even as economy grows

This article is more than 12 months old

WASHINGTON: US President Donald Trump likes to take credit for the US economy, with historic low unemployment and few signs of rising prices, but his promises that growth would pay for tax cuts are falling flat.

After an initial bounce last year and in the first three months of 2019, the economy is expected to slow this year. And the US budget deficit is widening, the gap edging closer to US$1 trillion (S$1.37 trillion).

Mr Trump promised to supercharge growth to 3 per cent or higher and claimed the tax cuts would pay for themselves by spurring investment and employment, which in turn would generate higher tax revenue.

In fact, July will mark the longest economic expansion in US history, with continual growth since mid-2009.

With a healthy economy, it is the ideal time for governments to shore up their finances and reduce debt, saving up for the next rainy day. But forecasts call for slower growth into next year, and last month the federal deficit hit a new record for May of US$208 billion, a 42 per cent increase from a year earlier.

Just eight months into the fiscal year that ends in September, the deficit is nearly as big as all of 2018, swelling to US$739 billion, US$206 billion higher than the same period last year.

Even the billions in tariffs taken in during Mr Trump's trade wars have not helped, since most of the funds have gone to aid farmers hurt by retaliation from China and others.

At the same time, government debt is expanding and now is larger than the country's annual economic output at more than US$22 trillion.

Even with a steady economic recovery for the past 10 years, the US economy is coping with an ageing population, which has pressured government finances due to the higher rising health and retirement costs.

And while government revenues grew a modest 2 per cent from October to May, total outlays jumped 9 per cent.

Mr Trump's tax cuts, which mostly benefited big corporations and the very rich, reducing revenues by 11 per cent while military spending increased 13 per cent, also added to the bill.

Since the start of the fiscal year, punitive tariffs on imports from China and other countries have brought in an additional US$21 billion to the US coffers.

But the Trump administration last year earmarked US$12 billion in aid to farmers hurt by Chinese retaliation, and another US$16 billion this year.

While Mr Trump claims the duties are paid by China, they in fact act as a tax on US businesses and consumers, which reduce profits and have started to drive up some prices. - AFP