A recession caused by the coronavirus pandemic and a government spending spree on testing, health care and aid to businesses and households will nearly quadruple the federal budget deficit to USD 3.7 trillion, the Congressional Budget Office said Friday.
Among the legacies of the outbreak, a CBO report says, is a pile of trillions of dollars of debt, amassed by a political system that has proved incapable of taking even small steps to constrain this problem.
The 2020 budget deficit will explode after four coronavirus response bills passed by Congress and signed by President Donald Trump promise to pile more than USD 2 trillion onto the USD 24.6 trillion national debt in just the remaining six months of the current fiscal year, according to the report. That's more than double the deficit record set during President Barack Obama's first year in office.
The CBO said lawmakers eventually will be forced to tackle the government's chronic financial woes, if for no other reason than the looming insolvency of Social Security and Medicare.
The report is full of gloomy economic news, predicting a devastating hit to the economy this quarter at an annualized rate of decline of 40 per cent, accompanied by a 14 per cent unemployment rate. Coronavirus-related federal debt and deficit figures are pointing to government red ink unparalleled since World War II.
One lasting worry is the further shrinking of revenues that already were well below historic averages, even as the spending side of the federal ledger climbs due to the retirement costs of the baby boomers to Medicare and Social Security, record Pentagon spending and long-term COVID-19 response costs.
Even Washington's few remaining spending hawks say the flood of red ink should not be a focus in the short term as the government takes unprecedented steps to respond to a shrinking economy, unemployment levels not seen since the Great Depression, and shutdown orders lasting well into next month or beyond. But when policymakers inevitably are forced to take on deficits, virtually none of them will have any experience in successfully doing so.
Congress has not passed a major attack on the deficit since the hard-won 1997 law that capped a decade's worth of politically costly but ultimately effective reduction measures.
The era of successful action to tackle debt and deficits ended more than two decades ago. In the interim, a divisive brand of politics has taken hold, making the kind of painful sacrifices required to even dent the deficit virtually impossible to pull off. What's more, no one has even seriously tried since a failed effort by former GOP Speaker John Boehner of Ohio and Obama almost a decade ago.
There's no agreement on what levels of debt and deficits are sustainable. The government has run large deficits for well over a decade without the predicted increase in interest rates, economic stagnation, or a European-style fiscal crisis.