The federal deficit tripled to a record $3.1 trillion in fiscal year 2020, with the budget gap ballooning to a share of economic output unseen since World War II, the Treasury Department said on Friday as quoted by Politico.
Government spending exceeded more than $6.5 trillion in the fiscal year that ended on Sept. 30, up from $4.4 trillion in fiscal 2019, due in no small part to coronavirus relief measures. The debt has soared to $21 trillion, which the fiscally minded Committee for a Responsible Federal Budget said exceeds more than a year’s worth of economic output.
Key context: The cavernous gap between how much the federal government spends and the revenue it takes in underscores the colossal legislative response mounted by Congress to tackle the coronavirus pandemic, which experts and economists deemed necessary to keep millions of people out of poverty and stave off total economic devastation.
Those same experts argue that more fiscal stimulus is desperately needed, but the prospects of passing another aid package before Election Day are bleak. Congressional leaders and the White House have been at total loggerheads for months, with little progress made on some of the most contentious issues, like funding for state and local governments.
House Democrats are pushing for at least another $2.2 trillion in the next stimulus package, while the White House is standing firm at $1.8 trillion. Senate Republicans plan to vote next week on a narrow $500 billion bill, with almost zero appetite for a higher price tag in the weeks before the election. The measure is unlikely to garner Democratic support.
Meanwhile, several jobless aid programs are set to expire on Dec. 31, severing a critical lifeline for millions of Americans without any income. Tens of thousands of airline employees are out of work. Jobless claims and infection rates across the country are ticking up and any economic recovery to date has been dramatically uneven.
How the administration is playing it: Both Treasury Secretary Steven Mnuchin and Office of Management and Budget Secretary Russ Vought issued rosy statements alongside the new Treasury data, projecting a swift economic rebound that most experts say has failed to materialize.
“Thanks to President Trump’s pro-growth policies and the bipartisan CARES Act, we are experiencing a strong economic recovery,” Mnuchin said. “The Administration remains fully committed to supporting American workers, families, and businesses and to ensuring that our robust economic rebound continues.”
Vought said: “President Trump built the best, most resilient, economy in the world with historic tax cuts, deregulation, and fair trade deals. As the country continues to open up and this Administration pursues its pro-growth agenda, our economy will continue its robust recovery, sending Americans back to work and improving our fiscal picture.”
Too much is not enough: Exploding debt and deficits aside, Congress can’t provide too much money in another round of relief, Federal Reserve Chair Jerome Powell said last week.
Powell stressed that another round of aid won’t go to waste, warning of a “tragic” scenario without any more assistance in which “a long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy.” Too little support from policymakers would “lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said.
Even budget hawks, like the CRFB, argue that the unprecedented level of federal borrowing has been warranted. But Congress and the White House were fiscally reckless up until this point, CRFB President Maya MacGuineas said in a statement on Friday.
“Borrowing to combat the pandemic and economic crisis makes sense,” MacGuineas said. “But that’s no excuse for the massive tax cuts and spending increases enacted before the pandemic, nor the failure to control the rising costs of our health and retirement programs once normalcy returns.”
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