The U.S. Treasury reports a $1.7 trillion deficit for 2023, a $320 billion increase from the previous year and 6.3% of GDP, indicating a recession disguised by bloated deficit spending. The Biden administration increased taxes, but revenues declined, with government receipts totaling $4.4 trillion (16.5 percent of GDP), 9.3% lower than 2022 and below budget projections.
This decline is primarily due to lower individual income tax receipts and lower deposits of earnings by the Federal Reserve due to higher interest rates. The Biden administration’s fiscal consolidation through revenue measures has proven false, with lower-than-expected tax receipts indicating a weak economy. The Biden administration’s increased taxes, expecting a record revenue figure, have also failed to deliver.
The US government’s deficit is not due to rising yields or central bank monetization, but rather to increased expenditures exceeding $6.1 trillion. The government cannot spend less than 22.8% of GDP, and no tax revenue measure can eliminate the deficit. Taxing the rich would require collecting $1.7 trillion in additional taxes annually, regardless of economic growth. With $33.6 trillion of public debt and an estimated $14 trillion accumulated deficit for 2023-2022, no tax measure can eliminate this issue.
Massively monetizing government spending caused inflation, which persists even with declining monetary aggregates. The government continues to consume an excessive amount of newly created currency units, and money market fund inflows suggest that the reduction in base money may be misleading. It is impossible to believe that a massive intervention from the Federal Reserve would have avoided the increase in deficit, but it does not matter. Even if there had been no increase in debt costs, the deficit would have remained above $1.6 trillion, and the annual deficit would have been higher than $1.3 trillion.
Keynesianism is a flawed economic theory that posits that government spending leads to higher growth and real wages. It is not a fiscal multiplier, and tax receipts do not rise with tax rate increases. Government spending is the primary source of the enormous deficit, which creates an inflationary problem and challenges the U.S. dollar as a world reserve currency. Countries like China are selling government bonds at a faster rate than ever, and the U.S. 10-year Treasury yield remains above 4.5%. The U.S.’s deficit poses a threat to the U.S. dollar, as it lacks free government money. The world’s U.S. dollars should come from productive investment and private sector credit creation, not rising government size.
