Deficit numbers set up competing visions from Biden and GOP

This fiscal year’s budget deficit has shrunk by half from a year earlier, but red ink surged monthly in September, largely on President Joe Biden’s plans to forgive student debtsince the cost of three decades was compressed into a single month.

Fiscal numbers released by the Treasury Department on Friday reveal ambiguous visions of what it means to be financially responsible: Biden can rightly claim that the fiscal 2022 budget deficit is down $1.4 trillion from a year earlier; Critics can use the same report to say that student loan forgiveness has added about $400 billion to the national debt as the government booked all spending.

Buried in the numbers is a deeper battle between Democrats and Republicans over what it means to be good financial managers. The federal budget deficit that year was $1.38 trillion. That’s down from $2.78 trillion in fiscal 2021 — and it’s a message Biden wants to sell voters ahead of the midterm elections.

“Today we have further proof that we are rebuilding the economy in a responsible way,” Biden said in a White House speech. “Republicans in Congress are doubling down on their commitment to let the deficit explode again.”

The annual deficit has roughly halved due to the end of spending related to relieving the coronavirus pandemic and higher tax revenues as more Americans found jobs — an improvement Biden attributes to his policies.

Republicans counter that Biden’s $1.9 trillion coronavirus relief plan, which helped spur those job gains, also helped spur high inflation, a top concern for voters heading into the midterm. They also want to reverse its recent 15% minimum corporate tax and expand funding for the IRS, although both could reduce projected deficits.

The government will likely need to increase its legal capacity to borrow, and Republican House leader Kevin McCarthy has signaled he will push for spending cuts if the GOP gets a majority in the Nov. 8 vote.

“You can’t just keep spending and adding to the debt,” McCarthy said in an interview with Punchbowl News this week. ‚ÄúThere comes a point where we give you more money, but you have to change your current behavior. We’re not just going to keep increasing your credit card limit, are we?”

Biden interpreted these comments as a threat to hold US government funds hostage and potentially make it impossible for the government to repay its debts.

“They will crash the economy next year, threatening the full confidence and creditworthiness of the United States and defaulting the United States for the first time in our history unless we give in to their demands, Social Security and… cutting Medicare,” Biden said.

Noting that momentum has fluctuated between the two parties in recent months, Biden said he expects voter energy to shift back to Democrats as gasoline prices have fallen over the past two weeks and the unemployment rate has remained low .

He also went on the offensive with his economic message, saying Republicans’ plans to reverse his policies and maintain expiring tax cuts benefiting the wealthy would eventually push up fiscal deficits.

“Taken together, the Republican plan would increase the deficit by about $3 trillion — $3 trillion,” the president said. “Increasing the deficit by another $3 trillion is reckless, irresponsible and would exacerbate inflation.”

Administration officials have argued that student debt forgiveness will allow borrowers to achieve life milestones like buying a home and starting a family. Republican lawmakers counter that forgiveness is a giveaway that disadvantages working people and those who are not in college.

The Monthly Bulletin added to those tensions as much of the cost of debt relief was booked in September, even though the loans would likely have taken 30 years to repay.

Biden in August announced $10,000 in student debt relief for those earning less than $125,000 a year or households making less than $250,000 a year. Those who received state Pell Grants for attending college are eligible for an additional $10,000 forgiveness.

Biden’s plan entitles 20 million people to fully pay off their government student debt.

States and groups aligned with Republicans have filed lawsuits to try to block forgiveness. A federal judge Thursday dismissed a lawsuit brought by six GOP-run states, saying the states lack standing to sue, a decision states plan to appeal.

Federal finances improved over the past 12 months as the unemployment rate fell to 3.5% from 4.7% in September 2021. Job gains allowed tax revenue to rise 21% year-on-year, while overall government coronavirus-related spending fell 8% and aid has faded.

In May, the Congressional Budget Office expected the federal deficit to narrow in 2023 and then grow to $2.25 trillion in a decade in the coming years.

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