U.S. deficit to hit $3T in 2021, then fade as stimulus expires, CBO says

WASHINGTON — The federal deficit will hit $3 trillion in 2021 for the second consecutive year due primarily to the national spending blitz in response to the coronavirus pandemic, the Congressional Budget Office said Thursday.

The deficit represents a slight decrease from last year but is triple that of 2019, and amounts to one of the biggest imbalances between federal spending and revenue in American history, the nonpartisan budget office said.

In 2021, the federal government is projected to spend $6.8 trillion higher than even last year’s total - while collecting about $3.8 trillion in revenue. Although spending is elevated from last year, the U.S. will take in more revenue as the pandemic fades and consumers resume normal activities - which is why the overall deficit will shrink modestly.

President Joe Biden’s $1.9 trillion stimulus, passed in March, accounts for much of this year’s spending imbalance. But that measure is temporary and will soon expire. The CBO projects the deficit will fall to $1.2 trillion in 2022 before dropping to $800 billion in 2023 and 2024 as pandemic relief measures fade. However, the budget office projects that the deficit will again begin to widen in 2025 and grow steadily for the rest of the decade, approaching close to $2 trillion by 2031.

“It’s more than any other year besides last year, which is in line with what we expect given the American Rescue Plan,” said Marc Goldwein, senior vice president at the nonpartisan Committee for a Responsible Federal Budget.

The CBO projects very fast economic growth, with the nation’s gross domestic project surging to 7.4 percent in 2021 before leveling off at a still robust 3.1 percent in 2022. It also projects the unemployment rate falling to 3.8 percent in 2022.

The forecast calls for a sharp rise in inflation, close to 3 percent in 2021, but falling to about 2 percent by 2022 and remaining around that level through 2025 at its prepandemic rate. The drop is in line with expectations from the Federal Reserve and the Biden administration.

Biden’s relief plan approved emergency assistance in $1,400 stimulus payments, unemployment benefits, aid to local governments, and other measures. Democrats and many economists have said that the spending was important to ensure avoiding a repeat of the slow economic growth that characterized the recovery from the Great Recession. Interest rates have also remained low, which make federal borrowing cheap.

“If there’s one thing we should have learned from the last 10 years, it’s that fears of government debt have been greatly exaggerated,” said J.W. Mason, professor of economics at the City University of New York. “In the U.S. and other rich countries, we have seen historically high debt levels with none of the negative consequences that they were expected to bring.”

Brian Riedl, a budget expert at the libertarianleaning Manhattan Institute, said lawmakers must act to lower the national debt, particularly because a spike in interest rates could cause federal spending to soar.

Riedl also pointed out that CBO’s estimates assumes the expiration of many spending policies that lawmakers are expected to extend, such as the expanded Child Tax Credit approved in March.

“This report reemphasizes that the debt is growing at an unsustainable pace,” Riedl said.