Budget Deficit To Hit Record $3.3 Trillion In 2020, National Debt To Exceed GDP In 2021

The U.S. federal budget deficit is expected to reach an all-time high of $3.3 trillion this year largely the result of massive expenditures by government to battle the impact of COVID-19, according to a new outlook released Wednesday by the Congressional Budget Office.

The figure of $3.3 trillion is triple the size of the deficit from 2019 and more than double the amounts incurred in the wake of the Great Recession of 2008-2009.

The deficit will amount to 16% of gross domestic product this year, the largest such percentage since the end of World War II. CBO said the deficit is projected to be 8.6% of GDP in 2021.

CBO also projected that annual deficits relative to the size of the economy will continue to decline through 2027 before increasing again in the last few years of the projection period, reaching 5.3% of GDP in 2030.

As a result of these projected deficits, the federal debt held by the public will likely exceed the country’s annual gross domestic product next year – again, a scenario not seen since the end of World War II.

CBO projected that the national debt will amount to 98% of GDP this year, up from 79% of GDP at the end of 2019 and 35% of GDP in 2007. By next year, the debt will exceed 100% of GDP and then reach a new record high of 107% in 2023. By 2030, debt will equal 109% of GDP.

Federal revenues are also expected to decline – from 16.3% of GDP in 2019 to 15.5% in 2021, “primarily because of the economic disruption caused by the pandemic and the federal government’s response.”

Revenues are expected to climb after 2021, reaching nearly 18% in 2030, “as a result of the expiration of temporary provisions enacted in response to the pandemic, scheduled increases in taxes, and other factors.”

The federal government has had to resort to enormous spending packages this year – amounting to trillions of dollars – to prop up an economy battered by the virus. Such expenditures have included loans to small businesses, wage subsidies to companies, enhanced unemployment benefits, direct payments of $1,200 and other stimulus measures.

Some analysts fear the enormous debt will hurt chances of an economic recovery.

“Congress must spend what it takes to end the pandemic and keep vulnerable families and businesses afloat. However, the deficit trends should scare any taxpayer,” wrote Brian Riedl, a senior fellow at the Manhattan Institute. “The pandemic and the recession will end, but it appears that trillion-dollar deficits are here to stay. … And, at a certain point, Washington’s insatiable borrowing needs will crowd out other investments and harm growth. Washington should help end the pandemic and rescue the economy, yet must also address these unsustainable long-term deficits.”

Indeed, more federal aid will likely be necessary as the unemployment rate remains above 10% and millions of people have filed for initial jobless claims in the past few months.

Democrats and Republicans in Washington have stalled talks on a new stimulus package, with some GOP members concerned about escalating spending. Democrats proposed a $3 trillion scheme but Republicans balk at spending above $1 trillion.

Although the debt and deficit are soaring, some analysts think continued spending to fight the virus is necessary – up to a point.

The Committee for a Responsible Federal Budget, an independent, non-profit, bipartisan public policy organization based in Washington, stated: “Today’s borrowing is largely appropriate and necessary in order to reduce and distribute over time the economic pain caused by the COVID-19 pandemic. But CBO’s newest figures show that our long-term course is unsustainable, and much worse than before. Once the current crisis ends, policymakers must turn their attention to long-term deficit reduction to put the country on solid fiscal ground."