By Kate Davidson
WASHINGTON -- The U.S. budget deficit tripled to a record $3.1
trillion in the fiscal year that ended Sept. 30 as the government
battled the global coronavirus pandemic that has plunged the
country into a recession, taken more than 217,000 American lives
and thrown millions out of work.
As a share of economic output, the budget gap in fiscal year
2020 hit roughly 16.1%, the largest since 1945, the Treasury
Department said Friday, when the country was financing massive
military operations to help end World War II.
Federal debt totaled 102% of gross domestic product, the first
time it has exceeded the size of the economy for the full fiscal
year in more than 70 years, according to estimates from the
Committee for a Responsible Federal Budget. That has put the U.S.
in a league with Greece, Italy and Japan among the most heavily
indebted nations.
Senate Republicans, citing the mounting debt, have balked at a
White House proposal to spend another $1.88 trillion and House
Democrats' $2.2 trillion bill to spur a recovery from the steepest
economic downturn since the Great Depression. Many economists and
Federal Reserve officials say restoring growth should be the first
priority, and that worries about closing the deficit can come
later.
"Unprecedented times call for unprecedented deficits," said
William Hoagland, senior vice president at the Bipartisan Policy
Center, a centrist Washington think tank. "Today's deficit figure
is the result of six months of fighting the pandemic and its
economic fallout."
The International Monetary Fund this week said global public
debt is likely to approach a record 100% of output but urged policy
makers to maintain spending to help vulnerable groups and promote a
strong recovery. The IMF said the global recession won't be as deep
as it projected earlier, thanks in part to massive deficit spending
by advanced and major emerging-market economies.
"The IMF's message from these meetings is clear: Avoid premature
withdrawal -- pulling the plug too soon risks serious,
self-inflicted harm," Managing Director Kristalina Georgieva told
reporters Thursday as finance ministers and central bankers
assembled virtually for the annual meetings of the fund and the
World Bank.
To cover the budget shortfall, the Treasury has sold a flood of
new securities, boosting total government debt held by the public
to $21 trillion, a 25% increase from the beginning of the fiscal
year.
Investors have shown scant worry about the deficit. U.S.
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
following better-than-expected retail sales data but fell after a
disappointing report on industrial production.
Federal revenue totaled $3.4 trillion, Friday's Treasury report
showed, down 1% from the previous year, with much of that occurring
since March, when the virus began spreading across the country.
Spending rose 47% to a record $6.5 trillion as the government
distributed emergency loans for small businesses, enhanced jobless
benefits and stimulus payments for American households.
Unprecedented relief spending -- the bulk of which was enacted
in the $2.2 trillion Cares Act in March -- helped keep households
and businesses afloat during the early months of the downturn,
boosting incomes and bolstering consumer demand. With more than 10
million people still out of work, however, there are signs that the
recovery's momentum is slowing as federal aid programs expire.
There is little evidence the U.S. is approaching the limit of
its ability to borrow. Investors are eager to keep buying Treasury
debt that is considered to be ultra-safe, holding interest rates
near historic lows, and inflation has barely budged. That has
translated to lower debt-servicing costs for the government, which
declined 9% last year from a year earlier, the Treasury said.
"There's no sign of alarming pressure from these deficits
anywhere in our economy," said Wendy Edelberg, director of the
Brookings Institution's Hamilton Project and a former Congressional
Budget Office chief economist. "We don't see the pressure in
interest rates, we don't see the pressure in inflation
expectations."
Deficits typically widen during economic downturns, but they
have been climbing in the U.S. for the past five years, despite
sturdy economic growth. The annual budget gap was on track to
exceed $1 trillion this year even before the pandemic, following
Republican tax cuts enacted in 2017 that constrained revenues and
two bipartisan budget deals that boosted spending.
Up until March, when the pandemic began to spread widely across
the country, the budget gap for 2020 largely mirrored the shortfall
during the same period of 2019. Federal spending from October
through March was up 6.8%, while revenues rose 6.4%, Treasury
officials said.
By contrast, from April through September, spending was nearly
twice as high as it was during the same six-month period a year
earlier, and receipts plunged 7.1%. That caused the deficit to
climb 715% in the second half of the year, compared with the same
period of 2019, Treasury officials said.
Much of the spending increase can be tied to efforts to mitigate
the economic downturn that resulted from the pandemic, officials
said. Spending by the Small Business Administration, which
administered the Payroll Protection Program for small businesses,
totaled $577 billion, up from $456 million a year earlier. Spending
by the Labor Department, which administers unemployment benefits,
jumped to $477 billion in 2020 from $36.4 billion in fiscal
2019.
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.
During the first half of fiscal 2020, federal receipts rose, as
a strong economy and low unemployment boosted corporate and
individual tax revenues. From April through October, however,
receipts declined as the virus brought economic activity to a
standstill, businesses shut down and more than 20 million workers
lost their jobs.
Individual income and payroll taxes fell 7% in the second half
of the year, while gross corporate tax receipts declined 15%, in
part due to measures Congress enacted to help reduce taxes this
year for businesses facing revenue losses, Treasury officials
said.
Write to Kate Davidson at kate.davidson@wsj.com
(END) Dow Jones Newswires
October 16, 2020 18:37 ET (22:37 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.