President Donald Trump promised to unveil an "inspirational" middle class tax cut next year during a political retreat in Maryland late Thursday, just as the Treasury Department said the nation's budget deficit topped the $1 trillion mark for only the second time on record.
Trump told House Republicans in the state's biggest city, Baltimore, that his "substantial" tax cut plans would be "very, very inspirational ... for middle-income folks, who work so hard," and that details would be released early next year. Congress, however, would need to approve and pass any suggested tax reductions from the executive branch, setting up a potential election-defining fight with Democratic lawmakers heading into next year's presidential elections.
The pledge will also add further pressure on the nation's finances after the Treasury reported a $169 billion shortfall in revenues in August, taking the overall deficit for the 11 months ended in August, the government's fiscal year, to $1.07 trillion. The last trillion-plus deficit was recorded in the three years that followed the 2008 global financial crisis.
The non-partisan Congressional Budget Office suggests that figure is likely to remain in place for at least the next decade as the $1.5 trillion in tax cuts passed by Republican lawmakers in late 2017 to trim the government's overall take and spending, which has risen 7% this year, continues to rise.
Corporate tax revenues are down 2% from last year in the eleven months to August, the Treasury said, while individual tax revenues have risen 2%.
At the same time, President Trump's ambition to trim the U.S. trade deficit with China appears to be having little success, even with tariffs placed on billions worth of goods in his ongoing trade war with Beijing. China's exports to the U.S. did shrink sharply in August, but it still notched a $26.95 billion surplus that takes the year-to-date tally to an all-time high of $195.45 billion.
The twin deficits may go some way toward explaining the recent rise in U.S. government borrowing costs, which have risen 40 basis points over the past two weeks, taking benchmark 10-year Treasury bond yields to a late-July high of 1.805%. Government spending on debt service is up $47 billion in this financial year, the Treasury noted, to just under $380 billion.
That said, tariffs have added $28 billion to the government's coffers this year, a figure that represents a 73% gain from the same period in 2018, as levies on billions of China-made goods, as well as smaller charges on imports from other nations, were collected from U.S. importers and paid to the Customs and Border Protection department.