U. S. bud­get gap tops $ 3 trillion

Spend­ing in re­sponse to the pan­demic triples the deficit, set­ting a record.

Los Angeles Times - - BUSINESS -

The U. S. bud­get deficit more than tripled to a record $ 3.1 trillion in the lat­est fis­cal year on the gov­ern­ment’s mas­sive spend­ing aimed at soft­en­ing the blow from the COVID- 19 pan­demic.

The in­crease brought the deficit as a share of gross do­mes­tic prod­uct to 16% in the year that ended in Septem­ber, the largest since 1945, a Trea­sury Depart­ment re­port showed Fri­day.

At the end of the fi­nan­cial cri­sis in 2009, the ra­tio was close to 10% be­fore slowly nar­row­ing through 2015.

In­vestors have handed the gov­ern­ment ul­tra- low bor­row­ing costs to f inance the spend­ing, re­sult­ing in a 9% drop in fed­eral in­ter­est pay­ments dur­ing the year.

But the na­tional debt is now big­ger than the size of the econ­omy, and it could be al­most double GDP by 2050 as an ag­ing pop­u­la­tion places more de­mands on pro­grams such as So­cial Se­cu­rity and Medi­care, ac­cord­ing to the Con­gres­sional Bud­get Of­fice.

The risk is that in the long term, ris­ing debt could end up spark­ing inf la­tion and re­pelling in­vestors if the mar­ket be­comes too sat­u­rated.

Fed­eral Re­serve Chair­man Jerome H. Pow­ell and other of­fi­cials say even­tu­ally the debt tra­jec­tory will need to be ad­dressed, but now isn’t the time to worry be­cause un­em­ploy­ment re­mains high and the pan­demic shut­down has crushed many busi­nesses, war­rant­ing fur­ther sup­port for the econ­omy.

Al­though the cen­tral bank cut the bench­mark in­ter­est rate to near zero in March and ex­pects to keep bor­row­ing costs very low for years to come, law­mak­ers re­main dead­locked over ad­di­tional fis­cal aid ahead of the Nov. 3 elec­tion.

The re­port showed fed­eral spend­ing jumped 47.3% to $ 6.55 trillion in fis­cal 2020, driven by in­creased out­lays for un­em­ploy­ment com­pen­sa­tion and small busi­nesses that were ap­proved by Pres­i­dent Trump and Congress.

Gov­ern­ment rev­enue de­clined 1.2% as re­ceipts from

in­di­vid­ual and cor­po­rate in­come taxes fell amid the pan­demic shut­downs.

Un­der­scor­ing the mas­sive f is­cal re­lief ef­forts this year, the Trea­sury’s re­port showed $ 275 bil­lion in out­lays for fed­eral ad­di­tional un­em­ploy­ment com­pen­sa­tion that in­cluded the now­ex­pired $ 600 sup­ple­men­tal weekly job­less pay­ments. Spend­ing for state un­em­ploy­ment ben­e­fits to­taled nearly $ 196 bil­lion in the f is­cal year.

Spend­ing on na­tional de­fense went from the sec­ond­largest out­lay in fis­cal 2019 to fifth in 2020 as the pan­demic in­duced larger spend­ing for in­come se­cu­rity, health and Medi­care.

Of­fi­cials say even­tu­ally the debt tra­jec­tory will need to be ad­dressed, but now isn’t the time to worry be­cause un­em­ploy­ment re­mains high.

THE NA­TIONAL DEBT Carolyn Kaster As­so­ci­ated Press

is now big­ger than the econ­omy, and it could be al­most double GDP by 2050. Above, the U. S. f lag f lies at the Capi­tol in Wash­ing­ton.

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