This is due to a substantial increase in government spending and a drop in tax revenues. The cost of financing the deficit is increasing as well, due to rising interest rates.
The deficit surged because of reduced investment gains last year, which led to lower tax revenues. The S&P stock index fell nearly 20% in 2022, leading to fewer capital gains, in-turn causing less taxes to be paid.
At the same time, government spending increased by 10%, with more money going to health care programs like Medicare and Medicaid, and Social Security payouts. The government also had to pay $52 billion to cover deposits at three banks that failed.
Concerns are being expressed about whether this trend can continue. The government is expected to spend more on interest payments in the next decade than on the entire defense budget, gvwire website reported.
There’s been a lot of political debate about how to handle this, with Republicans against raising revenues and the White House against cutting spending on major programs.
If the government fails to effectively address the situation, the country’s AAA bond rating could be at risk.