The U.S. budget deficit will total $2.3 trillion this fiscal year, down substantially from last year but still on track to be the second largest in the nation’s history, the Congressional Budget Office projected on Thursday. The 2021 deficit is expected to be 10.3% of GDP, down from 14.9% last year.
As the result of the coronavirus relief package passed by Congress in December, the deficit for this year will be $448 billion larger than estimated last September. That’s 25% bigger. CBO now estimates that the federal government will spend $5.76 trillion this year, up $698 billion from its September forecast. Federal revenues are expected to total $3.51 trillion, up $250 from the previous estimate.
Those projections don’t factor in the $1.9 trillion in additional aid proposed by President Joe Biden and now being crafted into legislation by Congress.
Even without that additional spending, deficits are expected to average $1.2 trillion a year from 2022 to 2031, topping their 50-year average of 3.3% of GDP in every one of those years. As those deficits mount, public debt is set to climb from 100% of GDP at the end of fiscal year 2020 to 102% by the end of this year and 107% of GDP by 2031, the highest level in U.S. history.
Yet even as the deficit hovers far above levels seen before the pandemic, CBO said that cumulative deficits over the next decade will be smaller than it previously estimated thanks to projections of a stronger economy. Those cumulative deficits are expected to total $12.6 trillion, $345 billion, or 3%, less than September’s forecast.
Why it matters: The CBO report illustrates the massive size of the fiscal response to the coronavirus pandemic — and it could give Republicans who have rediscovered deficit concerns more fodder to criticize Biden’s proposed relief package, even as many economists say that the nation can afford additional borrowing. CBO projects that net interest costs as a share of GDP will average 1.2% through 2026.
Budget hawks say that the report also highlights the long-term, structural challenges that will need to be addressed. “While policymakers are rightly focused on the fiscal response to the current crisis, they must turn their attention to long-term debt and deficit reduction to get the country on solid fiscal ground once the crisis ends,” the Committee for a Responsible Federal Budget said in a blog post.