The federal budget deficit soared to a record $3.1 trillion in the 2020 fiscal year, official figures showed on Friday, as the coronavirus pandemic fueled enormous government spending while tax receipts plunged as households and businesses struggled with economic shutdowns.
The shortfall underscores the long-term economic challenge facing the United States as it tries to emerge from the sharpest downturn since the Great Depression. Interest rates are low — meaning it costs less for the government to borrow money — but the ballooning deficit is already complicating policy choices as Republicans resist another large stimulus package, citing concerns about the U.S. debt burden.
The deficit — the gap between what the U.S. spends and what it earns through tax receipts and other revenue — was $2 trillion more than what the White Houses budget forecast in February. It was three times as large as the $984 billion deficit in the 2019 fiscal year.
In a statement accompanying the annual budget report, Treasury Secretary Steven Mnuchin highlighted the extraordinary level of money that has been pumped into the economy this year to combat the virus and prop up the economy.
Federal spending enabled a $600 weekly unemployment benefit on top of state benefits, a remarkably effective expansion of the safety net.
When the money stopped at the end of July, workers quickly burned through those reserves. Of the savings many households were able to build up over the course of four months of unusually generous government help, much of it was gone by the end of August, according to banking data from about 80,000 households receiving unemployment and analyzed by researchers at the JPMorgan Chase Institute and the University of Chicago.
Two and a half months after the benefits ended, Congress and the White House have been unable to reach an agreement on a broad stimulus package to revive them. Faced with dwindling savings and constant bills, most households face a dilemma.
“The choices are to stop spending on regular everyday purchases, or stop making payments like mortgages, student loans, auto loans, credit cards,” said Peter Ganong, an economist at the University of Chicago who studied the banking data. “That’s a terrible choice for a family to have to make. It’s a terrible choice for the macro economy.”