U.S. Budget Deficit Hit $3.1 Trillion Amid Virus Spending Surge
WASHINGTON — The federal budget deficit soared to a record $3.1 trillion in the 2020 fiscal year, official figures showed on Friday, as the coronavirus pandemic fueled a surge in spending and a drop in tax receipts brought by households and businesses struggling with economic shutdowns.
The federal government spent $6.55 trillion in 2020, while tax receipts and other revenue trailed at $3.42 trillion. Much of the spending came from the $2.2 trillion economic relief package that Congress passed in March, which was financed by government borrowing. Total debt held by the public topped $21 trillion at the end of September, a record level.
The shortfall underscores the long-term economic challenge facing the United States as it tries to emerge from the sharpest downturn since the Great Depression. Interest rates are low — meaning it costs less for the government to borrow money — but the ballooning deficit is already complicating policy choices as Republicans resist another large stimulus package, citing concerns about the U.S. debt burden.
The deficit — the gap between what the U.S. spends and what it earns through tax receipts and other revenue — was $2 trillion more than what the White House’s budget forecast in February. It was also three times as large as the 2019 deficit of $984 billion.
According to the nonpartisan Committee for a Responsible Federal Budget, the nation’s debt has now surpassed the size of the economy, amounting to 102 percent of gross domestic product.
“It is hard to believe we now owe a full year’s worth of output,” said Maya MacGuineas, president of the committee. “We weren’t supposed to cross this threshold for over a decade, but here we are.”
Ms. MacGuineas noted that the last time America’s debt exceeded the size of the economy was at the end of World War II, and that it took years of balanced budgets to bring it down.
The annual deficit was the largest since 2009, when the United States recorded a $1.4 trillion shortfall during the financial crisis.
In a statement accompanying the annual budget report, Treasury Secretary Steven Mnuchin highlighted the extraordinary level of money that has been pumped into the economy this year to combat the recession and prop up the economy. Russell T. Vought, the director of the Office of Management and Budget, said that as the recovery continued, the fiscal picture would improve as companies hired back workers and people began spending more money.
Federal agencies including the Treasury Department, the Small Business Administration, the Department of Agriculture and the Department of Health and Human Services saw their spending soar as they funneled loans to small businesses, subsidized farmers and provided funding for hospitals. Much of the money also went to households through stimulus checks and enhanced unemployment benefits that gave workers an extra $600 per week.
That spending was crucial to preventing families from falling into poverty and keeping businesses afloat. New research from the Federal Reserve released this week showed that Americans used one-time stimulus checks to save money and pay off debt.
Households spent just 29 percent of the money they received earlier this year, the Federal Reserve Bank of New York said in a post on its website, citing its Survey of Consumer Expectations, conducted in June and August. Another 36 percent of the cash was saved, while 35 percent was used to pay down debt.
Even the most ardent deficit hawks agreed that the virus, which shut down large swaths of the economy and tossed millions of out work, necessitated a huge fiscal response.
But with Election Day approaching, Republican lawmakers have shown little appetite for more spending, despite the fact that millions remain unemployed and previous aid has largely dried up. While the White House and Democrats want to bankroll another $1 trillion-plus aid package, Senate Republicans are preparing a $500 billion bill to vote on later this month. Speaker Nancy Pelosi and House Democrats support a $2.2 trillion package, while President Trump has endorsed going higher than the $1.8 trillion proposal the White House previously proposed.
On Thursday, he told Mr. Mnuchin, who is leading the negotiations, to make a bigger offer and said, “go big or go home.”
The Treasury secretary acknowledged this week that the deficit is a long-term concern but said now is not the time to worry about bringing it down. Given low interest rates and the severe nature of a health crisis that has stalled so many parts of the economy, he said the deficit was not an immediate priority.
“When you’re in a war — and we’re in a war against Covid — you spend what it takes to get rid of it,” Mr. Mnuchin said on Wednesday at the Milken Institute conference. “And that’s what we’ve done.”
Treasury officials had no estimate for next year’s deficit, but it is likely to be smaller unless another aid package is approved.
It appears unlikely that either Mr. Trump or his Democratic opponent, Joseph R. Biden Jr., would make significant progress in reducing the debt. While Mr. Trump has promised to tackle the deficit in a second term, he has also pledged to continue cutting taxes for individuals and corporations, while offering few details about how those would be paid for.
Mr. Biden wants to raise taxes on corporations and the wealthiest Americans to help pay for additional spending on health care, infrastructure and education. But those tax increases, while estimated to raise about $4.3 trillion, would not completely cover the costs of his spending proposals, according to the Committee for a Responsible Federal Budget.
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