In fiscal year 2023 (FY23), which ended on September 30, 2023, the federal government officially incurred a budget deficit of $1.7 trillion — about $320 billion higher than last year's amount. However, another revealing way to examine the year-over-year change is to examine the underlying deficit, excluding one-time, unusual accounting effects resulting from a Supreme Court decision striking down the Administration’s initiative for student debt forgiveness. Looking behind the numbers in that way, we see that the underlying deficit in 2023 doubled from the year prior — a huge jump during a time of economic expansion and reflective of the country’s unsustainable fiscal outlook.

A Breakdown of the Underlying Deficit

Understanding the underlying deficit for the past couple of years requires a review of a series of accounting adjustments for the federal budget. In FY22, the Department of the Treasury recorded a deficit of nearly $1.4 trillion for the year; that total included a “cost” of $379 billion to account for the Administration’s plan for student loan forgiveness. Without that adjustment, the deficit for FY22 would have been around $1 trillion.

However, in July 2023, the Supreme Court struck down the plan for debt forgiveness; as a result, a $333 billion reduction in spending was recorded (the amount of the reduction was less than the amount of cost recorded the previous year because the cost of other provisions in FY23 offset a portion of the reduction). Without that adjustment, the deficit for FY23 would have totaled around $2 trillion.

Therefore, by excluding those unusual accounting effects, the underlying deficit doubled from approximately $1 trillion to $2 trillion — a significant increase during a time of economic growth. That $1 trillion increase in the deficit was driven by lower collections of individual income taxes and a drop in remittances from the Federal Reserve along with higher interest payments, Social Security spending, and other factors.