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The IMF publishes a Fiscal Monitor report twice a year about levels of spending and taxes around the world. The April 2024 report, subtitles “Fiscal Policy in the Great Election Year,” contains some warnings about the size of US budget deficits.

For context, here a table with fiscal balances for high-income countries, with actual data for 2019-23, and projected data from 2024-29. You can see that before the pandemic in 2019, the US already had a higher-than-average budget deficit. When the pandemic hit, deficits go up everywhere, but among high-income countries are largest in the US. The US deficits are projected to be much higher than those of other high-income countries moving forward: for example, in 2025 the US fiscal deficit is 7.1% of GDP, while other advanced economies excluding the US have an overall deficit of 2% of GDP.

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I’ll note in passing that this is not a party-line issue. US deficits were already high under President Trump. The increase US government spending in response to COVID was bipartisan. The high deficits are now persisting under President Biden.

The IMF describes the US budget situation this way (mentions of figures omitted):

In 2023, the United States experienced remarkably large fiscal slippages, with the general government fiscal deficit rising to 8.8 percent of GDP from 4.1 percent of GDP in 2022, despite strong growth. Income tax revenues fell sharply, by 3.1 percentage points of GDP, owing to lower capital gains taxes in 2023 and delayed tax payment deadlines. Spending, in turn, increased by 1.3 percentage point of GDP.

The overall fiscal deficit is projected to persist at more than 6 percent of GDP over the medium term. Financing costs have increased substantially in recent years. Nominal yields on 10-year US Treasury bonds surged from below 1 percent in 2020 to 5 percent in October 2023, the highest level in 16 years, before receding to about 4 percent more recently amid a rapid pickup in inflation and inflation expectations. …

The rise in nominal term premiums also contributed to the surge in nominal Treasury yields in mid-2023. This rise reflects several factors, including the perceived risk of sustained inflation and uncertainty about the future path of monetary policy (US Congressional Budget Office 2023). Further, the Treasury’s plans to issue more debt, coinciding with quantitative tightening, likely contributed to heightened volatility in bond markets and a rise in term premiums … An empirical analysis to quantify the spillovers of US long-term nominal interest rates to nominal rates in other economies suggests that a 1 percentage point spike in US rates is associated with a rise in long-term nominal interest rates that peaks at 90 basis points in other advanced economies, with a persistent impact over many months. For emerging market economies, the same spike in US rates is associated with a peak increase in long-term interest rates of about 100 basis points. Moreover, it is possible that uncertainty about US fiscal policy and long-term rates could adversely affect financial conditions elsewhere. …

In sum, the previous analysis points to risks from loose fiscal policy in the United States along several dimensions. Loose US fiscal policy could make the last mile of disinflation harder to achieve while exacerbating the debt burden. Further, global interest rate spillovers could contribute to tighter financial conditions, increasing risks elsewhere.

The IMF also traces most of the surge in US core inflation rates to the very high budget deficits:

It is remarkable and discouraging that in the run-up to a US presidential election this fall, a central economic issue like the federal budget is not seriously discussed–indeed, it is barely mentioned.

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