Budget deficit to hit record $3.3T
WASHINGTON – The federal debt will grow to approximately the size of the entire economy this year, the Congressional Budget Office announced Wednesday in its first analysis to fully take into account the economic and fiscal effects of the coronavirus pandemic.
The debt is projected to be larger than the gross domestic product by next year, according to the report.
In the nonpartisan agency’s 10-year outlook that was issued in January, CBO had projected the debt wouldn’t reach 98% of GDP until 2030.
“We thought we had a full 10 years before reaching this unfortunate milestone, but the virus wiped out a decade of fiscal space in just a few months,” said Michael Peterson, head of the Peter G. Peterson Foundation, a nonpartisan organization focused on the country’s long-term fiscal challenges.
“Worse yet, by 2023 we will break the all-time record for debt-to-GDP, which was set just after World War II.”
Since the pandemic began, Congress has spent trillions of dollars on coronavirus-related spending, including direct payments to individuals, payroll assistance for businesses and expanded unemployment benefits.
Democrats and Republicans have not been able to agree on a fifth round of help that could dwarf the four previous rounds of assistance combined.
The budget office projected Wednesday that the government will run a $3.3 trillion deficit this year, the largest since 1945 as a share of the economy. It’s also more than triple the shortfall recorded last year. As a result, debt will rise sharply, reaching 98% of GDP in 2020, CBO said. Debt is projected to exceed the size of the economy in 2021 and increase to 107% in 2023.
Budget watchdog groups have said that federal assistance is warranted but have also warned about the future consequences of so much deficit spending.
Unlike in the 1940s, the last time the national debt exceeded economic output, the nation faces structural challenges digging out of the hole. An aging population, rising health care costs, compounding interest – as well as tax revenues falling short of spending commitments – were the primary drivers of rising debt before the virus, Peterson said.
“And they will remain so once the crisis has passed,” he added.
Democrats blame tax cuts, particularly those passed in 2017 by a GOPcontrolled Congress that have increased deficits by $1.9 trillion over a decade, according to the CBO.
Republicans have said the nation’s fiscal problems are rooted in unsustainable spending on programs such as Medicare, Medicaid and Social Security.