$3.1 Trillion: Pandemic Spending Drives The Federal Budget Deficit To A Record

Cheryl Sanders
October 18, 2020

Massive pandemic-related government spending and a drop in tax revenue caused the USA budget deficit to balloon to more than $3.1 trillion in fiscal 2020, triple the deficit of 2019.

Factors behind the increase include shrinking tax revenues and massive spending to prop up the economy, which has been hit by the coronavirus pandemic. That was the highest level since 1945, when the USA was borrowing heavily to finance World War II.

The final fiscal 2020 deficit numbers come as the Trump administration and Congress have been unable to agree on a new round of coronavirus stimulus, with many Senate Republicans calling for fiscal restraint in another package.

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.

"Borrowing to combat the pandemic and economic crisis makes sense".

US government bonds were little changed Friday, with the yield on the benchmark 10-year Treasury note ticking up to 0.743% from 0.730% Thursday, according to Tradeweb. Yields rose in the morning after better-than-expected retail sales data but fell after a disappointing report on industrial production.

Fiscal year 2020 expenditures jumped to $ 2.105 trillion from 2019, to a total of $ 6.55 trillion, with an increase largely related to support programs due to Corona, which included increased health care costs, benefit checks and unemployment compensation, as well as the cost of small projects and approved corporate rescue programs By Congress. Russell T. Vought, 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.

On Friday, the Trump Administration had revealed that its budget deficit for the fiscal year 2020 that ended on September 30, had been roughly three folds of a deficit of $984 billion reported a year earlier, pointing towards a pandemic-driven rise in expenses alongside a contraction in revenues. But the national debt is now bigger than the size of the economy, and it could be nearly double GDP by 2050 as an aging population places more demands on Social Security and Medicare, according to the Congressional Budget Office.

By another measure, the debt already exceeded the size of the economy during the April-through-June quarter, when it hit 105.2%, data from the Federal Reserve Bank of St. Louis show. Interest rates are low, which has made it relatively cheap to issue debt.

Investors have handed the government ultra-low borrowing costs to finance the spending, resulting in a 9% drop in federal interest payments during the year. Tax revenue was only slightly down from 2019.

By contrast, from April through September, spending was almost twice as high as it was during the same six-month period a year earlier, and receipts plunged 7.1%.

In September, the year's final month, the US budget deficit was $125 billion, compared with an $83 billion surplus in September 2019, the Treasury said.

Much of the spending increase can be tied to efforts to mitigate the economic downturn that resulted from the pandemic, officials said.

Spending for other safety-net programs, including Medicaid, Social Security and nutrition assistance, also climbed, along with outlays for new programs such as the coronavirus relief fund for cities and states and one-time $1,200 stimulus payments to households. That's because the gap between federal spending and collected tax revenue grew to unprecedented levels.

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