WASHINGTON – The U.S. deficit tripled to a record $ 3.1 trillion in the fiscal year ended September 30 as the government battled a global pandemic that plunged the U.S. into recession in February, the Treasury Department said on Friday With.
An increase in federal spending to fight the coronavirus and cushion the U.S. economy, as well as a decline in federal revenues due to widespread shutdowns and layoffs, contributed to the widening deficit. As a share of economic output, the budget gap in fiscal year 2020 was around 16.1%, the largest since 1945, when the country financed massive military operations to end the Second World War.
Federal revenues were $ 3.4 trillion, a 1% decrease from a year earlier, with much of the decline since March when the virus spread across the country. Federal spending rose 47% to a record $ 6.5 trillion as the government distributed emergency loans to small businesses and improved unemployment benefits and stimulus payments for American households.
Federal debt rose 25% over the course of the year to $ 21
By another measure, debt already exceeded the size of the economy from April to June when it reached 105.2%, according to data from the Federal Reserve Bank of St. Louis.
However, due to historically low interest rates and low inflation, the cost of servicing higher government debt has declined. Net interest costs to the public declined 9% year over year in the past year, the Treasury Department said, suggesting the government may be able to borrow more to fund the recovery.
Research and economic data show that unprecedented relief spending, the majority of which was passed in March under the Cares Act of $ 2.2 trillion, helped keep households and businesses alive during the first few months of the downturn get to boost incomes and boost consumer demand.
With more than 10 million people still unemployed, however, there are signs that the momentum of the recovery is slowing as federal aid programs expire. Economists and policymakers, including Federal Reserve Chairman Jerome Powell, have warned that growth could continue to slow unless Congress passes additional aid.
Republicans in Congress have opposed yet another major economic relief bill, pointing to enormous budget constraints this year and increasing federal debt as a reason to withhold more spending.
Until March, the budget gap for 2020 largely reflected the deficit for the same period in 2019. Federal spending rose 6.8% from October through March, while revenue rose 6.4%, tax officials said.
In contrast, from April to September spending was almost double that of the same half of last year, and income was down 7.1%. This resulted in the deficit increasing 715% in the second half of the year compared to the same period in 2019, tax officials said.
Much of the spike in spending can be linked to efforts to mitigate the economic downturn caused by the pandemic. Spending by the Small Business Administration, which administered the Small Business Payroll Protection Program, was $ 577 billion, compared to $ 456 million a year earlier. The Department of Labor’s spending, which administers unemployment benefits, increased from $ 36.4 billion in fiscal 2019 to $ 477 billion in 2020.
Spending on other safety net programs, including Medicaid, social security, and food aid, also rose, as did spending on new programs like the City and State Coronavirus Relief Fund and one-time stimulus payments of $ 1,200 to households.
In the first half of fiscal 2020, federal revenues rose as a strong economy and low unemployment boosted corporate and individual tax revenues. However, from April to October, revenues fell as the virus stalled economic activity, closed businesses and lost more than 20 million workers.
Individual income and payroll taxes fell 7% in the second half of the year, while gross corporate tax revenue fell 15%, partly due to measures taken by Congress to cut corporate taxes this year, faced with lost revenue.
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