Facing four-decade-high inflation and a declining stock market, the Biden administration has tried to tout some positive signs for the economy.
Often, administration officials cite today’s historically low unemployment rate. On occasion, they’ve touted progress on reducing the federal deficit. During an appearance on NBC’s “Meet the Press,” Treasury Secretary Janet Yellen said, “We’ve cut the deficit by a record $1.5 trillion this year.”
Yellen has a point on the scale of the reduction, but it’s important to put this decline into the context of the coronavirus pandemic, which jolted the federal government’s fiscal picture and helped produce the large deficit decline Yellen is touting.
First, a refresher about deficits. The federal deficit is determined by subtracting federal spending from federal revenue, primarily tax collections. If revenue exceeds spending, there’s a surplus. If spending exceeds revenue, there’s a deficit. (There hasn’t been a federal surplus since 2001.)
The Congressional Budget Office’s most recent estimate of the 2022 federal budget projects a deficit of about $1.04 trillion. That may sound like a lot of money to be in the hole. But it’s a lot smaller than the federal government deficit was during the previous year: $2.78 trillion.
That’s a difference of roughly $1.7 trillion. That is slightly more than what Yellen said. However, there are a variety of ways to measure income and spending, and all these numbers are moving targets until the end of the fiscal year on Sept. 30.
The bigger problem factually is Yellen’s characterization of the deficit reduction as a “record.” This year’s projected decline is larger than any previous one-year reduction in the deficit, but that’s because of an extraordinary historical occurrence: the coronavirus pandemic, and the unprecedented government response.
During 2020 and 2021, the federal government’s spending skyrocketed as both the Trump and Biden administrations tried to ease the pandemic’s economic blow. Moves included enacting stimulus payments, extending unemployment insurance, instituting business operation grants and increasing public health spending.
From 2019 to 2020 alone, federal spending rose by 47%, and then remained at a similar level in 2021, CBO data shows.
Because tax revenue didn’t keep pace with spending, the deficit surged in 2020 and 2021. The deficit rose from $983 billion before the pandemic in 2019 to about $3.1 trillion in 2020 and $2.8 trillion in 2021.
Read the full story at PolitiFact, and listen to an interview with PolitiFact Texas’ Nusaiba Mizan in the audio player above.
Radio interview produced by Alexandra Hart