The United States (US) budget deficit is projected to reach a record 3.3 trillion US dollars, or around IDR 48,510 trillion (exchange rate of IDR 14,700 per US dollar) due to enormous government spending to combat the coronavirus. Even the government has had to shore up the economy and has added a budget of more than US $ 2 trillion to the ledger.
As reported by the AP page, Friday (4/9), the soaring deficit indicates that the US government debt will exceed the annual gross domestic product next year. This is a milestone that will put the US in place after World War II, when accumulated debt exceeds the size of the economy.
The $ 3.3 trillion budget is more than three times the 2019 shortfall and more than double the levels experienced after the market crash and the 2008-2009 Great Recession. Government spending was driven by four programs to deal with the corona virus which reached US $ 6.6 trillion, an increase of US $ 2 trillion compared to the 2019 budget.
The recession has seen the fall in tax revenue fall, but the changes are not as dramatic as those seen on the expenditure side, with individual income tax collection lagging 11 percent last year. Corporate tax collection fell 34 percent.
The economy was closed in the spring, so people could be isolated, in a failed national attempt to beat the pandemic. The closure saw lawmakers and President Donald Trump pump money into business subsidies, larger unemployment benefits, $ 1,200 direct payments and other stimulus measures that have helped the economy in the short term.
Most economists were not bothered by large loans like these when the economy was in danger and that debt was barely a concern when a $ 2 trillion coronavirus aid bill was passed almost unanimously in March.
But now that lawmakers and the White House are bickering over the size and scope of the fifth virus assistance bill, Republicans are increasingly nervous about the enormous costs of fighting the pandemic. The Democratic-controlled House of Representatives passed a $ 3.5 trillion law in May, although House Speaker Nancy Pelosi, D-California said she was willing to cut the budget to $ 2.2 trillion.
The caseload remains unacceptably rising as the virus inflicts painful and prolonged losses on the economy and sentiment remains high for a fifth virus rescue package which will include money to reopen schools, patch state budgets and continue to increase unemployment benefits that have kept families afloat . .
Among Republicans, there appears to be little zeal for a deal. At least on what they saw as unfavorable terms. GOP leaders have pressed for packages in the $ 1 trillion range, but party talks during August focused on smaller packages.
The enormous deficit brings US government debt, as measured by the size of the economy, close to levels not experienced since the end of World War II, when explosive lending to finance the war effort caused a historic surge. But that rate quickly receded during the postwar boom, something that won’t happen now that federal spending is now dominated by pension plans like Medicare and Social Security, whose costs increase automatically with inflation and the retirement of Baby Boomers.
The deficit warning has long warned that rising debt levels will become a drag on the economy in the coming years. If interest rates rise too high, debt repayments will burden the budget significantly. The Federal Reserve has stepped in to keep the credit market stable and interest rates low for years as debt levels have risen.
“At some point Washington’s insatiable borrowing needs will push aside other investment and hurt growth,” said Manhattan Institute Senior Brian Riedl.
“Washington must help end the pandemic and save the economy, but it must also address this unsustainable long-term deficit,” he said.
At the end of the year, the national debt held by the public will amount to 98 percent of US gross domestic product, the total output of goods and services. That compares with 79 percent of GDP at the end of 2019 and 35 percent in 2007.
The CBO projects its debt to exceed 100 percent of GDP by 2021 and set a new record high of 107 percent in 2021. The CBO, the congressional nonpartisan economic and research body, predicts the deficit will reach US $ 13 trillion over the next decade.