The federal budget deficit for fiscal year 2021 totaled $2.8 trillion, the Congressional Budget Office estimated in a report released Friday. The gap is the second-largest on record, trailing only the pandemic-fueled $3.1 trillion in 2020.
Federal outlays in 2021 rose an estimated $265 billion (or 4%) to more than $6.8 trillion. “Programs and policies implemented in response to the coronavirus pandemic—notably, refundable tax credits (particularly the recovery rebates), expanded unemployment compensation, and the Small Business Administration’s Paycheck Protection Program—substantially boosted spending, in both 2021 and 2020,” the CBO report says. It adds that federal spending in 2021 was about $2.4 trillion higher than in 2019, an increase of more than 50% from pre-pandemic levels.
While federal spending rose, the economic recovery from the pandemic helped revenues rise even more — by an estimated $627 billion (or 18%) to more than $4 trillion, according to CBO.
Those revenues resulted in a deficit that was some $362 billion smaller than in 2020, and $233 billion smaller than the shortfall CBO projected in July. “Since CBO completed that estimate, income tax receipts have been greater than anticipated and outlays have been largely consistent with CBO’s projections,” the report says.
The CBO report also estimates that:
- Individual income and payroll taxes rose by a combined $441 billion (or 15%);
- Corporate income taxes increased by $158 billion (or 75*), in part because of higher corporate profits;
- Spending on unemployment compensation was $80 billion (or 17%) lower in 2021 than in 2020.
- Medicaid outlays grew by $63 billion (or 14%) as a result of the government’s pandemic response, which included a higher federal matching rate for the program and emergency coverage requirements;
- Spending on interest payments on the public debt increased by $25 billion (or 7%), both because the debt has grown and because higher inflation drove up the cost of inflation-protected securities.
The CBO numbers are estimates. The official totals for fiscal year 2021 will be released by the Treasury Department later this month.