Driven by the massive fiscal response to the COVID-19 pandemic, U.S. federal debt is projected to exceed the size of the economy for the fiscal year 2021, the highest level since World War II, the Congressional Budget Office (CBO) said Wednesday.
In An Update to the Budget Outlook: 2020 to 2030, the CBO projects a federal budget deficit of 3.3 trillion dollars in fiscal year 2020, which ends on Sept. 30, more than triple the shortfall recorded in 2019.
"That increase is mostly the result of the economic disruption caused by the 2020 coronavirus pandemic and the enactment of legislation in response," the CBO said, noting that federal budget deficit will reach 16 percent of gross domestic product (GDP) in 2020, the largest since 1945.
The deficit in 2021 is projected to be 8.6 percent of GDP, according to the report. In CBO's projection, annual deficits relative to the size of the economy generally continue to decline through 2027 before increasing again in the last few years of the projection period, reaching 5.3 percent of GDP in 2030.
Government spending surged in recent months, as Congress has already approved roughly 3 trillion dollars since March to cushion the economic impact of the pandemic. That, coupled with a plunge in tax revenue, caused federal deficits to soar and pushed up federal debt.
The CBO report showed that federal debt held by the public is projected to rise sharply to 98 percent of GDP in 2020, compared with 79 percent at the end of 2019 and 35 percent in 2007, before the start of the recession in 2008.
It would exceed 100 percent in 2021 and increase to 107 percent in 2023, the highest in the nation's history, the report said. By 2030, debt would equal 109 percent of GDP. The previous peak occurred in 1946 following the large deficits incurred during World War II.
Against the backdrop of a ballooning debt level, lawmakers are still under immense pressure to craft a new fiscal relief package, but remain in a deadlock over the size and scope of the package, which could again hit the trillion-dollar level.
Democrats have pushed for a 3 trillion dollar relief package, while the White House and Senate Republicans have proposed a 1 trillion dollar package. House Speaker Nancy Pelosi said she spoke to Treasury Secretary Steven Mnuchin on Tuesday, but the two sides failed to bridge their differences.
"As CBO shows, our fiscal situation will continue to deteriorate as a result of irresponsible tax and spending policies, rising health and retirement costs, and increased fiscal support to address the COVID-19 crisis," Committee for a Responsible Federal Budget, a nonpartisan watchdog group, said in a statement.
"While policymakers rightly enacted deficit-increasing fiscal support to bolster the economy, they must turn their attention to long-term debt and deficit reduction to get the country on solid fiscal ground once the crisis ends," it said. Enditem