Coronavirus Spending Pushes U.S. Budget Deficit to $3 Trillion for 12 Months Through June
As share of GDP, deficit is on pace to be the largest since World War II
WASHINGTON—The U.S. budget deficit reached $3 trillion in the 12 months through June as stimulus spending soared and tax revenue plunged, putting the federal government on pace to register the largest annual deficit as a share of the economy since World War II.
As a share of gross domestic product, the 12-month deficit came to 14% last month, compared with 10.1% in February 2010, when the U.S. was still recovering from the last recession. In June alone, the deficit widened to a monthly record of $864 billion, the Treasury Department said Monday—nearly as much as the gap for the entire previous fiscal year, which totaled $984 billion.
The Congressional Budget Office has projected the annual deficit could total $3.7 trillion in the fiscal year that ends Sept. 30. But the gap could widen even further if Congress and the White House agree later this month on another round of emergency spending, which economists argue is vital to keep households and businesses afloat until the economy begins to recover.
Congress has authorized $3.3 trillion in new spending since March to help combat the impact of coronavirus shutdowns, including stimulus checks to American households and emergency loans and grants to struggling businesses and state and local governments. The Trump administration has also delayed personal and corporate income-tax payments until July 15 in an effort to keep more cash in Americans’ wallets.
“The good news is this means we’re getting fiscal relief out the door fast,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a deficit watchdog group. “The bad news is that we’re having to borrow record amounts on top of so much unpaid-for spending and tax cuts that lawmakers approved in the past few years.”
Widespread unemployment and business shutdowns have pushed down tax revenue while also boosting spending on safety net measures including unemployment insurance and nutrition assistance. A renewed surge of coronavirus cases across the South and West is forcing some states, including Texas, to reimpose social distancing measures, putting a quick economic recovery in doubt.
Federal deficits typically widen in times of recession and narrow when the economy grows. This time, the deficit was already rising in the final years of the decadelong expansion that ended in February following the Trump administration’s sponsored tax cuts of 2017.
Political support for taming deficits has faded in Washington in recent years, as persistent global demand for U.S. Treasury assets has kept borrowing costs near historic lows. Despite the surge in government borrowing, net interest costs fell 11% in the first nine months of the fiscal year, the Treasury said Monday.
The dramatic rise in red ink has rankled some Republicans and White House officials, who have argued against another sweeping economic relief package and called instead for aid that is more narrowly targeted at the hardest hit-industries, in part due to concerns about the deficit.
Democrats and many economists, however, have said policy makers must tackle the more pressing problem—controlling the virus and supporting American households and businesses—and worry about deficits later, especially when the cost to borrow is so low. The yield on the benchmark 10-year Treasury note was around 0.622% late Monday, down from more than 2% a year ago.
The CBO estimated last week that the jobless rate will end the year at 10.5%, compared with a 50-year low of about 3.5 percent before the recession. While the economy is expected to grow in the second half this year, output in the fourth quarter of 2020 will be 5.9% lower than a year earlier, the agency said.
The economy showed signs of reviving in May and June as parts of the country reopened. The number of Americans receiving unemployment benefits fell by nearly 700,000 to 18.1 million for the week ended June 27, the lowest reading since the week ended April 18. Employers added a combined 7.5 million jobs in May and June after shedding 21 million jobs in March and April.
Whether that recent rate of job creation and relatively lower pace of layoffs, can continue is in doubt because coronavirus infections are causing state authorities to reconsider reopening plans and creating renewed uncertainty for many businesses and consumers.
In June, spending soared to $1.1 trillion, compared with $342 billion in the same period a year earlier, the Treasury said Monday. Nearly half of that spending went to emergency small-business loans provided under the Paycheck Protection Program, aimed at helping small firms meet payroll and keep workers attached to their jobs.
Outlays for jobless benefits climbed from roughly $2 billion in June 2019 to $116 billion last month, about half of which was due to the extra $600 in weekly benefits that Congress authorized as part of the so-called Cares Act. Those enhanced payments are set to expire at the end of this month unless Congress chooses to extend them.
Meanwhile, federal revenue sank 28% to $241 billion, due in part to the administration’s decision to delay tax payment deadlines. The government typically receives an influx of revenue in June when corporations and individuals make quarterly estimated tax payments. Senior Treasury officials said Monday they expect to receive a large share of that revenue in July, though declining wages and reduced economic activity have also constrained federal receipts.
For the first nine months of the fiscal year, the budget gap totaled $2.7 trillion, the Treasury said, more than triple the deficit during the same period a year earlier. Receipts fell 13% from October through June compared with a year earlier, and spending rose 49%.