An unprecedented deficit in the United States budget due to Corona spending

Elias Hubbard
October 18, 2020

The deficit in fiscal year 2019 was $984 billion.

Even the most ardent deficit hawks agreed that the virus, which shut down large swaths of the economy and tossed millions out of work, necessitated a huge fiscal response.

Outlays for fiscal 2020 jumped $2.105 trillion from 2019 to a total of $6.55 trillion, with the increase made up nearly entirely from coronavirus aid programs: increased healthcare costs, stimulus checks and unemployment compensation, along with the cost of small business and corporate rescue programs approved by Congress.

When the government spends more than it collects in taxes-as it has almost every year in recent decades, apart from a brief surplus in the late 1990s-it turns to investors to borrow funds. That was due to interest rates being lower than expected this year because of the recession that began in February.

The U.S. government considers money taken from workers and businesses through the tax system to be "revenue", although unlike private sector revenue it is received not through voluntary sales transactions but mandatory collections.

The monthly budget report reflects the historic fiscal spending used to pad the United States against the coronavirus pandemic, as well as the weakened tax income from Americans struggling through the pandemic. The federal deficit is approaching 100 percent of GDP and is projected to top that amount in 2021. A federal unemployment benefit for millions has expired, and economists warn that the recovery could be stalled or setback by prematurely ending government aid programs.

Spending rose 47 percent to $6.5 trillion, largely due to the four pandemic relief bills passed by Congress in March that authorized an aggregate of $2.4 trillion in spending.

Brian Riedl, a budget analyst at the conservative-leaning Manhattan Institute, told the Post the economic recovery is leveling off, "which means the deficit numbers will continue to be pretty bad".

In tandem, Friday's joint statement from the US Treasury alongside the Trump Administration had also indicated a plunge of $203 billion in individual income taxes from the Government's February projection, while corporate income taxes were jolted $51.8 billion from a February forecast.

Trump fell far short of his pledge to curb the national debt from the 2016 presidential campaign, when he argued: "We've got to get rid of the $19 trillion in debt".

The widening deficit has stirred concern among Republicans in the Senate, who have balked at a White House proposal to spend $1.88 trillion more to spur a recovery from the steepest economic downturn since the Great Depression.

A rising tide of debt, an ebb in interest rates. As a share of economic output, the budget gap in fiscal year 2020 hit roughly 16.1%, the largest since 1945, when the country was financing massive military operations to help end World War II.

Treasury officials had no estimate for next year's deficit, but it is likely to be smaller unless another aid package is approved.

Other reports by Click Lancashire

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