1 00:00:02,033 --> 00:00:04,233 AMNA NAWAZ: Numbers out this week show the federal budget deficit taking a big jump over 2 00:00:04,233 --> 00:00:07,833 the last spending year, despite significant economic growth. 3 00:00:07,833 --> 00:00:09,900 John Yang takes a look behind the data. 4 00:00:09,900 --> 00:00:14,466 JOHN YANG: Amna, the government reported it just ended the fiscal year with a deficit 5 00:00:14,466 --> 00:00:18,366 of $779 billion. 6 00:00:18,366 --> 00:00:21,666 That's a 17 percent jump from 2017. 7 00:00:21,666 --> 00:00:26,666 The number is getting close scrutiny because most of President Trump's $1.5 trillion tax 8 00:00:28,566 --> 00:00:31,000 cut took effect in January, just three months into the spending year. 9 00:00:31,000 --> 00:00:36,000 Here to walk us through all this, the "NewsHour"'s correspondent Lisa Desjardins, and David Wessel, 10 00:00:38,033 --> 00:00:41,100 director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. 11 00:00:41,100 --> 00:00:43,200 Lisa, let me start with you. 12 00:00:43,200 --> 00:00:47,966 How does this number for 2018, the 2018 fiscal year, how does that fit into historical trends? 13 00:00:49,566 --> 00:00:52,066 LISA DESJARDINS: This is a dramatic increase in recent years. 14 00:00:52,066 --> 00:00:54,600 Let's look at some numbers. 15 00:00:54,600 --> 00:00:58,366 You go back just three years ago, 2015, the number of the deficit that year was $439 billion. 16 00:01:00,100 --> 00:01:01,300 Look at that. 17 00:01:01,300 --> 00:01:03,466 This is almost double what it was then. 18 00:01:03,466 --> 00:01:06,000 And it's going to continue to rise, John, many people know. 19 00:01:06,000 --> 00:01:10,066 Look, in just two years, it's going to be right around $1 trillion, according to the 20 00:01:10,066 --> 00:01:11,966 Congressional Budget Office. 21 00:01:11,966 --> 00:01:16,266 And that curve, John, continues to get even steeper as we continue to go forward. 22 00:01:16,266 --> 00:01:20,733 Now, what's interesting here is, this still is not as high as the deficits were in 2009 23 00:01:20,733 --> 00:01:22,233 and 2010. 24 00:01:22,233 --> 00:01:25,300 Those were historic highs in relatively recent terms. 25 00:01:25,300 --> 00:01:28,433 However, those were years in which we had a recession. 26 00:01:28,433 --> 00:01:31,833 We're talking about these deficits now in times of growth and a good economy. 27 00:01:31,833 --> 00:01:33,900 And that is different. 28 00:01:33,900 --> 00:01:36,400 JOHN YANG: And, of course, those projections are if current law stays into effect, if nothing 29 00:01:36,400 --> 00:01:37,633 were to change. 30 00:01:37,633 --> 00:01:38,900 Now, what's driving the 2018 deficit? 31 00:01:38,900 --> 00:01:41,033 LISA DESJARDINS: That's right. 32 00:01:41,033 --> 00:01:43,500 So if you look deep into the numbers that the Treasury Department put out, you find 33 00:01:43,500 --> 00:01:45,600 some very interesting things. 34 00:01:45,600 --> 00:01:49,233 First of all, in this year, talking about taxes, we look at these numbers, you see that 35 00:01:49,233 --> 00:01:51,933 actual tax revenue stayed about flat. 36 00:01:51,933 --> 00:01:54,966 It rose about half-a-percent, a little bit less. 37 00:01:54,966 --> 00:01:57,533 But spending is what has changed most dramatically. 38 00:01:57,533 --> 00:02:01,600 So you have got flat revenues, and you have got a lot more spending, less -- not money 39 00:02:01,600 --> 00:02:04,666 coming in, a lot of money going out, you get a deficit. 40 00:02:04,666 --> 00:02:07,466 Where was the bigger -- where were the bigger increases? 41 00:02:07,466 --> 00:02:11,100 Defense spending -- $65 billion increase just in the past year. 42 00:02:11,100 --> 00:02:13,100 And look at that interest on the debt. 43 00:02:13,100 --> 00:02:17,866 We saw an increase of $62 billion in what we're spending to pay off this debt. 44 00:02:17,866 --> 00:02:22,033 Now, of course, defense wasn't the only place we saw an increase, but that -- also non-defense, 45 00:02:22,033 --> 00:02:25,933 but it shows Congress spent a lot more and we have a larger deficit. 46 00:02:25,933 --> 00:02:30,300 JOHN YANG: So, David, the -- Lisa says that the revenue is remaining flat. 47 00:02:30,300 --> 00:02:33,766 So what does that tell us about the effect of President Trump's tax cuts? 48 00:02:33,766 --> 00:02:38,266 DAVID WESSEL, Brookings Institution: Well, the economy, as Lisa said, is very strong. 49 00:02:38,266 --> 00:02:42,133 And so without a tax cut, we would have seen increasing revenues. 50 00:02:42,133 --> 00:02:47,166 We also see, if you look at the numbers, corporate tax receipts fell 30 percent. 51 00:02:47,166 --> 00:02:50,133 And that's largely the result of the president's tax cut. 52 00:02:50,133 --> 00:02:55,100 So what we're seeing -- you would expect at a time like this revenues rising faster than 53 00:02:57,066 --> 00:02:59,833 spending, because the economy is strong, more people working, paying taxes, fewer people 54 00:02:59,833 --> 00:03:03,633 collecting unemployment benefits and such, and the deficit would shrink. 55 00:03:03,633 --> 00:03:06,300 We see the opposite, and that's largely because of the tax cut. 56 00:03:06,300 --> 00:03:09,866 JOHN YANG: Now, David, Senate Majority Leader Mitch McConnell says it's entitlements. 57 00:03:09,866 --> 00:03:14,866 He said Social Security, Medicare, Medicaid, that's what's driving these deficit forecasts. 58 00:03:15,566 --> 00:03:17,600 Is he right? 59 00:03:17,600 --> 00:03:20,900 DAVID WESSEL: Well, look, if you look at what happened last year, it's not Social Security, 60 00:03:20,900 --> 00:03:22,166 Medicare and Medicaid. 61 00:03:22,166 --> 00:03:24,233 It's taxes. 62 00:03:24,233 --> 00:03:28,200 The size of the tax cut was about in -- according to CBO, was about $165 billion. 63 00:03:29,533 --> 00:03:32,400 The deficit increased by $113 billion. 64 00:03:32,400 --> 00:03:34,433 Do the arithmetic. 65 00:03:34,433 --> 00:03:38,633 If you look ahead, though, and you look at the projections, the reason the deficit is 66 00:03:41,033 --> 00:03:43,633 rising is because we are spending more on Social Security, Medicare and Medicaid, largely 67 00:03:44,500 --> 00:03:46,533 because the population is aging. 68 00:03:46,533 --> 00:03:51,200 If you look at CBO's 10-year projections, spending on benefits, particularly for elderly 69 00:03:51,200 --> 00:03:52,833 people, are going up. 70 00:03:52,833 --> 00:03:54,300 Interest on the debt is going up. 71 00:03:54,300 --> 00:03:56,500 And everything else is holding or going down. 72 00:03:56,500 --> 00:04:01,466 JOHN YANG: Lisa, the deficit had stopped being a hot-button issue for a long time. 73 00:04:02,666 --> 00:04:04,266 Now it's sort of -- it's back on the front pages. 74 00:04:04,266 --> 00:04:06,300 Is Congress, do you think, going to do anything about this? 75 00:04:06,300 --> 00:04:07,366 LISA DESJARDINS: No. 76 00:04:07,366 --> 00:04:08,600 JOHN YANG: Short answer. 77 00:04:08,600 --> 00:04:10,633 LISA DESJARDINS: My short answer, no. 78 00:04:10,633 --> 00:04:13,566 You have an entire caucus of conservatives, the Freedom Caucus, who have led with this 79 00:04:13,566 --> 00:04:18,000 issue in the past, but they are the ones who ended up voting and passing some of these 80 00:04:18,000 --> 00:04:21,000 larger spending bills in a deal with Democrats. 81 00:04:21,000 --> 00:04:22,933 Republicans wanted more money for defense. 82 00:04:22,933 --> 00:04:25,166 Democrats wanted more money for non-defense. 83 00:04:25,166 --> 00:04:26,666 They all came together. 84 00:04:26,666 --> 00:04:29,200 I spoke to Senate Leader Mitch McConnell about this yesterday. 85 00:04:29,200 --> 00:04:32,333 He agreed that, for now, it looks like the spending increases are on the rise. 86 00:04:32,333 --> 00:04:35,500 But they have got some real problems ahead, because first they have got to keep government 87 00:04:35,500 --> 00:04:37,466 funded starting in December. 88 00:04:37,466 --> 00:04:40,600 And then, next year, they have got new budget caps they have got to work around. 89 00:04:40,600 --> 00:04:43,033 But, right now, all the momentum is towards spending. 90 00:04:43,033 --> 00:04:47,933 JOHN YANG: David, you mentioned that the economy's in good shape, the unemployment rate is low, 91 00:04:48,666 --> 00:04:51,566 growth is pretty strong. 92 00:04:51,566 --> 00:04:55,366 Is there a reason for concern about these deficits, if everything seems to be going 93 00:04:55,366 --> 00:04:57,400 so well? 94 00:04:57,400 --> 00:05:01,366 DAVID WESSEL: Well, there's clearly no reason to worry about today's deficits, as you say, 95 00:05:02,666 --> 00:05:04,633 50-year low in unemployment, inflation stable. 96 00:05:04,633 --> 00:05:08,266 I think that's why the politicians don't seem to feel the need to deal with this. 97 00:05:08,266 --> 00:05:10,700 And there's certainly not very much pressure from the public. 98 00:05:10,700 --> 00:05:12,333 The problem is in the future. 99 00:05:12,333 --> 00:05:15,366 If something is unsustainable, it can't go on forever. 100 00:05:15,366 --> 00:05:19,600 And every year, we're borrowing more and more money because we have promised to pay benefits 101 00:05:19,600 --> 00:05:23,433 to people that the current tax code will not cover. 102 00:05:23,433 --> 00:05:25,833 And at some point, we're going to have to do something. 103 00:05:25,833 --> 00:05:27,900 Some people think we will have a crisis. 104 00:05:27,900 --> 00:05:32,400 I'm not sympathetic to that view, because people have been predicting crises since you 105 00:05:32,400 --> 00:05:34,633 and I started covering this stuff in the early '90s. 106 00:05:34,633 --> 00:05:36,833 And the crisis doesn't arrive. 107 00:05:36,833 --> 00:05:40,666 But we know, from economics, that eventually this will erode the amount of -- the rate 108 00:05:40,666 --> 00:05:43,000 of growth, and we will have lower living standards. 109 00:05:43,000 --> 00:05:46,833 And will be spending more and more of our tax money to pay interest on the debt, a good 110 00:05:46,833 --> 00:05:48,900 chunk of which will go to foreigners. 111 00:05:48,900 --> 00:05:52,500 JOHN YANG: But, David, as you say, we have - - you and I have been covering this for almost 112 00:05:52,500 --> 00:05:54,500 30 years now. 113 00:05:54,500 --> 00:05:59,300 And we have sat and reported all those 30 years that something has to be done eventually. 114 00:05:59,300 --> 00:06:02,400 When -- what's going to be the pressure point? 115 00:06:02,400 --> 00:06:05,733 You say, you don't think it's going to be a crisis, but what's it going to take to get 116 00:06:05,733 --> 00:06:07,800 the political incentive to do something? 117 00:06:07,800 --> 00:06:11,666 DAVID WESSEL: I think that's the $4 trillion question, John. 118 00:06:11,666 --> 00:06:16,666 Look, I think the politics will change when people think the deficit is hurting them. 119 00:06:18,600 --> 00:06:22,033 One reason in the past Congress has had to deal with this is because interest rates have 120 00:06:22,033 --> 00:06:24,100 gone up a lot. 121 00:06:24,100 --> 00:06:28,266 So if the Fed keeps raising interest rates, if mortgage rates go up, if the Fed chair 122 00:06:30,800 --> 00:06:32,966 does, as Alan Greenspan used to, or Paul Volcker, lecture Congress that it's your fault because 123 00:06:32,966 --> 00:06:36,033 you're not dealing with the deficit, that could change things. 124 00:06:36,033 --> 00:06:40,366 And the second thing is, we could -- and I don't see it on the horizon -- have some kind 125 00:06:40,366 --> 00:06:44,833 of leadership, where some president would say, look, this isn't a problem today, it's 126 00:06:44,833 --> 00:06:48,900 a problem for your kids, and I want to do something about it, and would be able to sell 127 00:06:48,900 --> 00:06:53,100 the American people on a little belt-tightening now, so we have a better life in the future. 128 00:06:53,100 --> 00:06:55,100 JOHN YANG: Lisa, what are the chances of that? 129 00:06:55,100 --> 00:06:57,166 LISA DESJARDINS: Well, we have got a presidential election coming up. 130 00:06:57,166 --> 00:07:01,000 And so far, none of the Democrats running are running on the deficit. 131 00:07:01,000 --> 00:07:04,833 President Trump occasionally talks about it, but he's made no indication that he's interested 132 00:07:04,833 --> 00:07:06,033 in changing it. 133 00:07:06,033 --> 00:07:07,566 There are hard political choices. 134 00:07:07,566 --> 00:07:10,200 And we have got leadership questions for many issues. 135 00:07:10,200 --> 00:07:13,266 This is maybe toward the bottom of that very difficult stack. 136 00:07:13,266 --> 00:07:15,766 JOHN YANG: Lisa Desjardins, David Wessel, thank you very much. 137 00:07:15,766 --> 00:07:15,900 DAVID WESSEL: You're welcome.