New, eye-popping US budget figures released on Thursday show an enormous US$3.1 trillion deficit in the just-completed fiscal year, a record swelled by COVID-19 relief spending that pushed the tally of red ink to three times that of last year.
The deficit equals 15 percent of the US economy, a huge gap that is the largest since the government undertook massive borrowing to finance the final year of World War II, the US Congressional Budget Office said.
The government spent US$6.6 trillion last year and borrowed US$0.48 of every dollar it spent, the office said.
The numbers amount to a 47 percent increase in spending, led by US$578 billion for the Paycheck Protection Program for smaller businesses, and a US$443 billion increase in unemployment benefits over the past six months alone.
The massive figures were expected, but still stunning, at more than double the previous deficit record of US$1.4 trillion that was registered during former US president Barack Obama’s first year in office during the Great Recession in 2009.
Revenues also contributed to the bleak fiscal picture, falling US$44 billion to US$3.4 trillion, as income tax receipts dropped almost 16 percent as the jobless rate spiked.
Corporate income taxes fell by 21 percent, even as social security and Medicare payroll taxes climbed 5 percent.
Economists say that the most significant measure of government deficits is to compare them to the GDP. By that measure, the flood of red ink this year still blew past Obama’s 2009 record, in which the deficit almost hit 10 percent of GDP.
The office estimate is preliminary, based on daily US Department of Treasury reports, but is likely to match the official numbers due from the Treasury and the White House budget office later this month.
The figures come as Washington has been debating another round of COVID-19 relief, spending that US Federal Reserve Chairman Jerome Powell says is needed to ease the chances of a double-dip recession and a higher jobless rate.
However, talks have broken down and fears are rising that more fiscal stimulus will have to wait until next year.
The coronavirus-related spike in the deficit obscures a smaller, steady rise in the deficit under US President Donald Trump’s watch. Trump in 2017 engineered a large tax cut, the 10-year cost of which has been matched by pandemic relief efforts over the past six months alone.
In August, the office issued a 10-year estimate predicting that the deficit would decline to US$1.8 trillion in the 2021 budget year that began on Thursday last week and would register US$13 trillion over the coming decade.
It would average 5 percent of GDP over that time, a level that many economists fear could lead to higher interest rates and a stagnating economy.
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