The United States has a problem that will take a long time to fix.

        New York Times

BREAKING NEWS

The budget deficit reached a record $3.1 trillion, driven by government spending on households and businesses struggling with pandemic shutdowns.

Friday, October 16, 2020 2:07 PM EST

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.

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                                     The Washington Post

News Alert Oct. 16, 2:02 p.m. EDT

U.S. budget deficit breached $3.1 trillion in 2020 as coronavirus pandemic slammed economy, new government data shows The federal government’s record-shattering deficit was the result of a huge increase in spending by Congress and the White House to try to prevent the recession from deepening. The White House said the government spent $6.55 trillion in the fiscal year that ended Sept. 30, nearly double what it brought in through tax revenue. Read more

Wall Street Journal

ECONOMY

U.S. Budget Gap Tripled to Record $3.1 Trillion in Fiscal 2020, Treasury Says

Spending soared 47% in year ended September 30 as government rolled out programs to battle coronavirus and recession.

By Kate Davidson

Updated October 16, 2020, 2:33 pm ET

WASHINGTON—The U.S. deficit tripled to a record $3.1 trillion in the fiscal year that ended Sept. 30, as the government battled a global pandemic that plunged the U.S. into a recession in February, the Treasury Department said Friday.

A surge of federal spending to combat the coronavirus and cushion the U.S. economy, coupled with a drop-off in federal revenues amid widespread shutdowns and layoffs, contributed to the widening deficit. As a share of economic output, the budget gap in fiscal year 2020 hit roughly 16.1%, the largest since 1945, when the country was financing massive military operations to help end World War II.

Federal receipts totaled $3.4 trillion, a 1% decline from the previous year, with much of the drop occurring since March, when the virus began spreading across the country. Federal spending rose 47% to a record $6.5 trillion as the government distributed emergency loans for small businesses, and enhanced jobless benefits and stimulus payments for American households.

Federal debt rose 25% for the year, to $21 trillion at the end of September, from $16.8 trillion at the start of fiscal 2020. The Committee for a Responsible Federal Budget has estimated debt hit 102% as a share of gross domestic product, exceeding the size of the economy for the full fiscal year for the first time in more than 70 years.

By another measure, the debt already exceeded the size of the economy during the April-through-June quarter, when it hit 105.2%, data from the Federal Reserve Bank of St. Louis show.

Historically low interest rates and low inflation, however, meant the cost of servicing higher government debt declined. Net interest costs on the public declined 9% last year from a year earlier, the Treasury said, suggesting the government has the capacity to borrow more to finance the recovery.

Research and economic data show that unprecedented relief spending— the bulk of which was enacted in the $2.2 trillion Cares Act in March—helped keep households and businesses afloat during the initial months of the downturn, boosting incomes and bolstering consumer demand.

With more than 10 million people still out of work, however, there are signs that the recovery’s momentum is slowing as federal aid programs expire. Economists and policy makers, including Federal Reserve Chairman Jerome Powell, have warned that growth could decelerate further unless Congress passes additional aid.

Republicans in Congress have balked at another large economic relief bill, pointing to the huge budget shortfalls this year and mounting federal debt as reasons to hold back on more spending.

Up until March, the budget gap for 2020 largely mirrored the shortfall during the same period of 2019. Federal spending from October through March was up 6.8%, while revenues rose 6.4%, Treasury officials said.

By contrast, from April through September, spending was nearly twice as high as it was during the same six-month period a year earlier, and receipts plunged 7.1%. That caused the deficit to climb 715% in the second half of the year compared with the same period of 2019, Treasury officials said.

Much of the spending increase can be tied to efforts to mitigate the economic downturn that resulted from the pandemic, officials said. Spending by the Small Business Administration, which administered the Payroll Protection Program for small businesses, totaled $577 billion, compared with $456 million a year earlier. Spending by the Labor Department, which administers unemployment benefits, jumped to $477 billion in 2020 from $36.4 billion in fiscal 2019.

Spending for other safety-net programs, including Medicaid, Social Security and nutrition assistance, also climbed, along with outlays for new programs such as the coronavirus relief fund for cities and states and one-time $1,200 stimulus payments to households.

During the first half of fiscal 2020, federal receipts rose, as a strong economy and low unemployment boosted corporate and individual tax revenues. From April through October, however, receipts declined as the virus brought economic activity to a standstill, businesses shut down and more than 20 million workers lost their jobs.

Individual income and payroll taxes fell 7% in the second half of the year, while gross corporate tax receipts declined 15%, in part due to measures Congress enacted to help reduce taxes this year for businesses facing revenue losses, Treasury officials said.