President Joe Biden has been taking credit for reducing the federal budget deficit, the annual gap between the money the government takes in and the money the government spends.
“Let me remind you again: I reduced the federal deficit,” Biden said in a speech on Wednesday. “All the talk about the deficit from my Republican friends, I love it. I’ve reduced it $350 billion in my first year in office. And we’re on track to reduce it, by the end of September, by another 1 trillion, 500 billion dollars – the largest drop ever.”
Biden’s figures for both the 2021 fiscal year (which ran through last September) and the ongoing 2022 fiscal year (which runs through the coming September) are accurate, though the $1.5 trillion figure for 2022 is a projection. But some experts on fiscal policy say Biden is distorting reality when he claims that he is personally responsible for the deficit going down.
The deficit has been smaller under the Biden administration than it was at the end of President Donald Trump’s tenure. But the deficit has been bigger under the Biden administration than the nonpartisan federal Congressional Budget Office had projected it would be if the Biden-era federal government stuck with the laws that were in effect when Trump left office in early 2021.
“The actions of the administration and Congress have undoubtedly resulted in higher deficits, not smaller ones,” Dan White, senior director at Moody’s Analytics – an economic research firm whose analysis Biden has repeatedly touted in his speeches – said in an email. “It is encouraging that the administration has proposed some initiatives to bring down the deficit, but so far none of those initiatives has been seriously considered.”
A smaller deficit than before – but a bigger deficit than expected
The roughly $2.8 trillion deficit in fiscal 2021, during which Biden was in office for more than eight months, was about $360 billion lower than the roughly $3.1 trillion deficit in fiscal 2020, Trump’s last full fiscal year in office.
A $360 billion decline is certainly substantial. The Congressional Budget Office, however, had estimated at the beginning of Biden’s tenure that the fiscal 2021 deficit would be a decline of more than $870 billion if the Biden administration did not implement new policy.
The Biden administration did implement new policy – notably including a massive pandemic relief package.
Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, an organization that advocates deficit reduction, said in an interview that Biden’s claims about having personally reduced the deficit are “almost bizarro world,” a reversal of reality. The deficit would have fallen by much more “had President Biden come to office and not done anything,” he said.
It’s important to note that Congress has the power of the purse in the federal government. Presidents propose budgets, but Congress habitually ignores them in favor of its own spending preferences. So both blame and credit should be shared.
Goldwein said the Biden administration has “a lot of good ideas” for reducing the deficit in the future. But so far, he said, Biden has “done lots of things that have increased deficits” – from signing the pandemic relief package to signing a major bipartisan infrastructure law to boosting food stamp benefits to extending the Trump-era pandemic pause on federal student loan repayments – and has “passed no pieces of legislation to directly reduce deficits.”
Expiring pandemic spending has been the main factor
So why, then, has the federal deficit gotten smaller at all under Biden, even if it has been higher than was originally projected at the time Biden took office?
There are a number of factors at play – including the economic rebound for which White, Goldwein and others say Biden can fairly take some credit. But the main factor is that temporary pandemic relief spending has been ending, bringing federal spending down from extraordinarily high levels.
There was an explosion of short-term spending under Trump after the pandemic hit in 2020. Combined with the reduction in tax revenue largely caused by the pandemic-related economic crash, that temporary spending caused the deficit to skyrocket to an all-time record in fiscal 2020 – the roughly $3.1 trillion that was more than triple the deficit of the year prior.
So a decline from unprecedented 2020 deficit levels was always very likely. And even a big decline from those 2020 levels doesn’t mean the deficit is low by historical standards.
The roughly $2.8 trillion deficit in fiscal 2021 is the second-largest deficit in US history in nominal terms and, according to Goldwein’s organization, the sixth-largest as a percentage of Gross Domestic Product. If the fiscal 2022 deficit does end up $1.5 trillion lower than the fiscal 2021 deficit, as Biden correctly noted the Treasury Department now expects, it would still be among the largest ever.
And even with a $1.5 trillion decline from fiscal 2021, the fiscal 2022 deficit is still expected to be significantly higher than the deficit the Congressional Budget Office had projected for fiscal 2022 at the time Biden took office. Running a higher-than-expected deficit in fiscal 2021 provided more room for dramatic-sounding deficit reduction in fiscal 2022.
The quick rebound has helped, too
The deficit has a spending component and a revenue component. And it would be fair for Biden to boast about putting more revenue in government coffers through economic growth.
Biden’s $1.9 trillion pandemic relief bill not only increased government spending but helped fuel an unusually rapid recovery from the 2020 crash – a recovery that generated additional tax payments as well as reducing spending on unemployment benefits in particular.
Joel Friedman, senior vice president for federal fiscal policy at the liberal Center on Budget and Policy Priorities think tank, said in an email that the deficit has fallen under Biden in part because pandemic measures have expired but also “because of strong economic growth” Friedman said is “related” to the pandemic measures.
The “robust” federal pandemic response not only reduced hardship, Friedman said, but “helped make the Covid-19 recession the shortest on record and helped fuel an economic recovery that has brought the unemployment rate down to 3.6 percent and boosted revenue.”
The deficit did increase under Trump
While claiming credit for the deficit falling during his own presidency, Biden has also taken aim at Republicans’ fiscal stewardship – saying in his Wednesday speech that the deficit “went up every year under my predecessor, before the pandemic and during the pandemic.”
That part is true. Trump’s tax cuts and other policies led to a sharp increase in the deficit even before Covid-19.
The deficit was $439 billion under President Barack Obama in fiscal 2015 and $587 billion in fiscal 2016, Obama’s last full fiscal year in office. It rose to $666 billion in fiscal 2017, Trump’s first partial fiscal year in office; rose again to $779 billion in fiscal 2018; then rose once more to $984 billion in fiscal 2019 before the pandemic-related tripling in fiscal 2020.