Bud­get deficit spikes to a record

Breaches $3.1 tril­lion af­ter dra­matic surge in virus re­lief spend­ing

The Washington Post - - FRONT PAGE - BY JEFF STEIN AND AN­DREW VAN DAM

The U. S. bud­get deficit eclipsed $3.1 tril­lion in the fis­cal year that ended Sept. 30, ac­cord­ing to gov­ern­ment data re­leased Fri­day, by far the big­gest oneyear gap in U.S. his­tory.

The data are a stark re­flec­tion of the stag­ger­ing blow that the coro­n­avirus pan­demic has dealt to the U.S. econ­omy.

The deficit — the gap be­tween gov­ern­ment spend­ing and tax rev­enue — shows the dra­matic surge in spend­ing the U.S. gov­ern­ment ap­proved to con­tain the pan­demic’s fall­out ear­lier this year.

The deficit last year was about $1 tril­lion, which rep­re­sented an el­e­vated level but pales in com­par­i­son with this year’s tally. For 2020, the gov­ern­ment spent $6.552 tril­lion, up from $4.447 tril­lion one year ago, ac­cord­ing to the data re­leased jointly by the White House and the Trea­sury Depart­ment. The

gov­ern­ment brought in $3.420 tril­lion in tax rev­enue in 2020, a slight de­crease from last year.

“Most of the in­crease in the deficit rel­a­tive to last year is higher spend­ing as a re­sult of covid re­lief,” said Marc Gold­wein, a bud­get ex­pert at the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get, which ad­vo­cates for re­duc­ing the deficit.

The new fig­ures come as the White House and House Speaker Nancy Pelosi (D- Calif.) are locked in ne­go­ti­a­tions about an­other round of eco­nomic re­lief, which could in­clude about $2 tril­lion more in aid. Spend­ing like this could fur­ther add to the gov­ern­ment’s bud­get deficit, but eco­nomic ex­perts from across the po­lit­i­cal spec­trum, in­clud­ing Fed­eral Re­serve Chair Jerome H. Pow­ell, have said the as­sis­tance is nec­es­sary to pre­vent the eco­nomic re­cov­ery from flag­ging and keep mil­lions of peo­ple from fall­ing into poverty. Busi­nesses have picked up the pace of lay­offs in re­cent weeks, par­tic­u­larly at travel-re­lated com­pa­nies.

Nu­mer­ous Repub­li­can law­mak­ers have bris­tled at the fed­eral spend­ing spree in re­sponse to the pan­demic, and the surg­ing deficit may fuel their re­luc­tance to au­tho­rize ad­di­tional re­lief. Con­ser­va­tives alarmed by the deficit may also push hard for its re­duc­tion should Demo­cratic pres­i­den­tial nom­i­nee Joe Bi­den win the elec­tion, set­ting the stage for a re­vival of the fierce bud­get bat­tles preva­lent dur­ing much of the Obama ad­min­is­tra­tion.

The gov­ern­ment tra­di­tion­ally runs some sort of bud­get deficit, and it fi­nances the gap be­tween taxes and spend­ing by is­su­ing debt. In­ter­est rates are low, which has made it rel­a­tively in­ex­pen­sive to is­sue debt. But the debt to­tals have risen markedly dur­ing the Trump ad­min­is­tra­tion, even be­fore the pan­demic, up­end­ing the pres­i­dent’s 2016 cam­paign vow to elim­i­nate the debt over eight years. The debt when Trump en­tered of­fice was about $14.4 tril­lion. It now stands at around $21 tril­lion.

The pre­vi­ous high­est deficit recorded was in 2009, when it came in at $1.4 tril­lion. That is less than half this year’s tally.

In March and April, Congress ap­proved close to $3 tril­lion in spend­ing pro­grams in re­sponse to the pan­demic. This in­cluded hun­dreds of bil­lion of dol­lars in aid for the un­em­ployed and small busi­nesses, as well as $1,200 stim­u­lus checks for mil­lions of Americans. The econ­omy fell into a steep re­ces­sion ear­lier this year as many busi­nesses shut down and sent work­ers home be­cause of the virus out­break.

The gov­ern­ment’s spend­ing im­bal­ance sky­rock­eted in April and June as the gov­ern­ment’s coro­n­avirus re­lief ef­forts were im­ple­mented and the econ­omy cratered. That’s be­cause the gap be­tween fed­eral spend­ing and col­lected tax rev­enue grew to un­prece­dented lev­els. The monthly deficit jumped to $738 bil­lion for April alone, which was a record un­til the monthly deficit for June came in at $864 bil­lion. The June deficit was big­ger than the en­tire 12month deficit in 2018.

Spend­ing soared across gov­ern­ment agen­cies this year. The

Ed­u­ca­tion Depart­ment, for in­stance, spent 96 per­cent more than it had last fis­cal year, while the Small Busi­ness Ad­min­is­tra­tion spent close to $600 bil­lion more than pre­vi­ous years due to its im­ple­men­ta­tion of the Pay­check Pro­tec­tion Pro­gram for small busi­nesses hurt by the virus.

Monthly deficits have since sub­sided some­what, as the pace of new gov­ern­ment spend­ing slowed and the U.S. econ­omy be­gan to bounce back and the un­em­ploy­ment rate fell, re­sult­ing in greater tax rev­enue. In Au­gust, the monthly fed­eral deficit came in at $200 bil­lion, as the amount of fed­eral spend­ing was halved from June. But this de­crease in spend­ing has come amid signs that the eco­nomic re­cov­ery is slow­ing, which has prompted the White House and some law­mak­ers to con­sider more aid.

De­spite the in­crease of the deficit, econ­o­mists and law­mak­ers from both sides of the po­lit­i­cal aisle have clam­ored for more gov­ern­ment spend­ing. The un­em­ploy­ment rate fell from 14.7 per­cent in April to 7.9 per­cent in Septem­ber, but tens of mil­lions of Americans re­main out of work, and el­e­vated job­less claims have per­sisted. A fed­eral un­em­ploy­ment ben­e­fit for mil­lions of peo­ple has ex­pired, and econ­o­mists warn that the re­cov­ery could be stalled or set back by pre­ma­turely end­ing gov­ern­ment aid pro­grams.

Amer­ica’s fail­ure to ad­e­quately stim­u­late the econ­omy helped lead to a tepid re­cov­ery from the Great Re­ces­sion, and law­mak­ers should avoid mak­ing the same mis­take again, said An­gela Hanks, deputy ex­ec­u­tive di­rec­tor of the Ground­work Col­lab­o­ra­tive, a left-lean­ing group. Congress must still pass more spend­ing to pre­vent peo­ple from go­ing hun­gry or los­ing their homes, she said.

“Stacked up against ques­tions about the debt, mean­ing­ful in­vest­ments to im­prove peo­ple’s lives should win ev­ery time,” Hanks said. “Mas­sive in­vest­ment right now will help the econ­omy growth over­all, and if we pur­sue aus­ter­ity, peo­ple will suf­fer and we will have a slower, more painful re­cov­ery across the board.”

Brian Riedl, a bud­get an­a­lyst at the con­ser­va­tive-lean­ing Man­hat­tan In­sti­tute, warned that Amer­ica’s jobs re­cov­ery has al­ready picked up the “low-hang­ing fruit” po­si­tions that were easy to bring back. Other jobs in sec­tors such as the hos­pi­tal­ity, air­line and restau­rant in­dus­tries will be harder to bring back, par­tic­u­larly as the United States braces for an in­crease in coro­n­avirus cases dur­ing the cold win­ter months.

“The growth is lev­el­ing off. The eco­nomic re­cov­ery is lev­el­ing off,” Riedl said. “Which means the deficit num­bers will con­tinue to be pretty bad.”

But the bi­par­ti­san con­sen­sus that ap­proved the big jump in spend­ing ear­lier this year ap­pears to have waned, and some Senate Repub­li­cans have sig­naled they are not com­fort­able with the big spend­ing pack­age that the White House is ne­go­ti­at­ing with Pelosi.

Trump fell far short of his pledge to curb the na­tional debt from the 2016 pres­i­den­tial cam

paign, when he ar­gued: “We’ve got to get rid of the $19 tril­lion in debt.” Trump spear­headed a Repub­li­can ef­fort to ap­prove $2 tril­lion in tax cuts in 2017, and he also worked with Congress to ap­prove large spend­ing in­creases in 2018.

On Wed­nes­day, Trump told the New York Eco­nomic Club that re­duc­ing the fed­eral debt would be a pri­or­ity of his sec­ond term, even as he urges Congress to spend more than $1.8 tril­lion on an ad­di­tional re­lief pack­age. Trump also said faster eco­nomic growth would erase the U.S. debt bur­den, al­though bud­get ex­perts say spend­ing cuts or tax hikes would be nec­es­sary to do so.

“It’s very con­cern­ing to me and we’re go­ing to start do­ing that. I think you’re go­ing to start to see tremen­dous growth . . . the growth is go­ing to get it done,” Trump said of the ris­ing debt. “It’s very much on my mind.”

Trump also as­serted Thurs­day, with­out ev­i­dence or ex­pla­na­tion, that China would pay for the stim­u­lus pack­age, sim­i­lar to his pre­vi­ous false claim that Mex­ico would pay for the bor­der wall. All the spend­ing in­creases he has au­tho­rized since tak­ing of­fice have been fi­nanced by U.S. gov­ern­ment funds.

The $3.1 tril­lion deficit re­flects the 2020 fis­cal year, which in­cludes sev­eral months be­fore the pan­demic struck. Both the amount of fed­eral spend­ing this year and the over­all deficit are record amounts in Amer­i­can his­tory, se­nior Trea­sury Depart­ment of­fi­cials told re­porters on a phone call Fri­day.

“Stacked up against ques­tions about the debt, mean­ing­ful in­vest­ments to im­prove peo­ple’s lives should win ev­ery time. Mas­sive in­vest­ment right now will help the econ­omy growth over­all, and if we pur­sue aus­ter­ity, peo­ple will suf­fer and we will have a slower, more painful re­cov­ery across the board.” An­gela Hanks, deputy ex­ec­u­tive di­rec­tor of the Ground­work Col­lab­o­ra­tive

JABIN BOTSFORD/THE WASH­ING­TON POST

Trea­sury Sec­re­tary Steven Mnuchin,eco­nomic ad­viser Larry Kud­low and Scott At­las of the Hoover In­sti­tu­tion lis­ten as Pres­i­dent Trump speaks at an Au­gust virus brief­ing. The debt when Trump en­tered of­fice was about $14.4 tril­lion. It now stands at around $21 tril­lion.

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