218 percent: US deficit hits record $3.1 tn amid pandemic spending surge

Remigio Civitarese
Ottobre 18, 2020

All of the spending increases he has authorized since taking office have been financed by USA government funds. Total federal debt stood at more than $27 trillion. Although some economists have claimed the private sectors' spending contracts in anticipation of future tax hikes to pay for the borrowing, decades of experience make this doubtful.

Investors have shown scant concern about the deficit.

This year's deficit amounted to 15.2% of the USA gross domestic product, the greatest deficit as a percentage of the economy since 1945, according to the Bipartisan Policy Center's online deficit tracker.

The deficit - which is the gap between government spending and tax revenue - shows the dramatic surge in spending the US government approved in order to contain the pandemic's fallout earlier this year.

"It's disappointing to both candidates for president proposing trillions of dollars in additional debt", said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

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. This year, in reaction to the pandemic, the Fed dropped its interest rate target to almost zero and announced a new policy more tolerant of inflation that will likely keep rates lower than they would have been otherwise. Interest rates are low - meaning it costs less for the government to borrow money - but the ballooning deficit is already complicating policy choices as Republicans resist another large stimulus package, citing concerns about the USA debt burden.

Most of the excess spending came from the emergency $2.2 trillion CARES Act, which boosted unemployment compensation and issued loans to businesses to keep workers on the payroll, the statement from the department and White House Office of Management and Budget said. At the same time, economists on Wall Street and elsewhere in the federal government emphasized the importance of new aid as the pace of recovery slows.

Up until March, the budget gap for 2020 largely mirrored the shortfall during the same period of 2019. September outlays rose by $206 billion from a year earlier to $498 billion, due to Covid-19 related spending. September 2020 had a monthly budget deficit of $125 billion compared with a surplus of $83 billion in September 2019, the agency said.

Much of the spending increase can be tied to efforts to mitigate the economic downturn that resulted from the pandemic, officials said. It was also three times as large as the 2019 deficit of $984 billion.

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.

The Treasury Department said the surge was partly due to a drop in corporate and personal tax revenue, which fell by 1%.

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