The United States' federal budget deficit skyrocketed to a record $3.13 trillion in fiscal year 2020 ending September, more than three times the shortfall recorded in fiscal 2019.
Exacerbated by the immense economic damage wrought by COVID-19, the FY 2020 deficit was also the largest since 1945 relative to the size of the economy, and the fifth straight in which the deficit rose as a percentage of GDP. It's also equivalent to 15.2 percent of U.S. GDP.
On the other hand, this deficit as reported by the nonpartisan Congressional Budget Office (CBO) was $180 billion smaller than the shortfall it estimated in September. CBO said government revenue collections came to $3.4 trillion in FY 2020, or $123 billion more than expected. Estimated outlays amounted to $6.6 trillion or $56 million less than projected.
CBO said the deficit in the first six months of the fiscal year, (October 2019 to March 2020) only saw an 8% increase from the 2019 deficit. On the other hand, the shortfall for the next six months catapulted the deficit to more than eight times the shortfall in the same period in FY 2019.
The U.S. government has run a budget deficit since 2002. Its last budget surplus ($127 billion) occurred in 2001 under former president Bill Clinton.
Economists said the massive year-over-year jump is due almost entirely to the pandemic, which forced the federal government to spend more than $4 trillion. This unprecedented spending went to help stem the massive economic pain inflicted on workers and businesses caused by sudden and widespread business shutdowns.
Most economists also agree more money will need to be spent until the gets the raging pandemic under control. House Democrats have put forward a $2.4 trillion spending bill president Donald Trump appears to now support.
However, this rescue assistance will come at an enormous price. The country's total debt owed to investors (or the total of annual deficits accruing over the years) will have outpaced the size of the economy at nearly 102% of GDP, said the Committee for a Responsible Federal Budget (CRFB), an independent bipartisan public policy organization based in Washington, D.C. The last time the debt as this high was in 1946, when it was 106.1% of GDP.
"Debt is the size of the economy today, and soon it will be larger than any time in history," said CRFB president Maya MacGuineas.
CBO estimates government spending will continue rising and will far exceed revenues. Servicing this mammoth debt will consume an enormous share of tax dollars.
A federal deficit outpacing economic growth puts the U.S. at greater risk of a fiscal crisis, according to economists.
"There is no set tipping point at which a fiscal crisis becomes likely or imminent, nor is there an identifiable point at which interest costs as a percentage of GDP become unsustainable," noted CBO director Phillip Swagel last month. "But as the debt grows, the risks become greater."
