The federal government will shatter the record for spending and deficits this year, ending at $3.3 trillion in the hole, the Congressional Budget Office said Wednesday, painting a grim picture of Uncle Sam’s finances.
Powered by generous aid to combat the COVID-19 pandemic, federal spending will roughly equal a third the size of the U.S. economy. Combined with state and local spending, that puts the U.S. on par with some of Northern Europe’s most expansionist governments in terms of public spending.
“The pandemic and legislation enacted in response to it have caused the deficit to surge in the past few months,” CBO said in the new update.
The report is the first to take account of all the emergency spending Congress approved over the last five years, and to stack it up against the pace of tax revenue and the trajectory of the economy.
CBO predicted spending will snap back to its pre-pandemic trend line within a few years, but some lasting damage will be done. Federal debt held by the public, which will reach nearly 100% of gross domestic product by the end of this year, and will cross that ignominious threshold next year.
And by 2023 debt will set all-time records, topping even the levels seen in the aftermath of World War II.
By the end of this decade, debt will have doubled from less than $15 trillion in 2019 to more than $31 trillion in 2030.
All told, federal spending this year will reach $6.6 trillion. That’s $2.2 trillion more than last year.
On the other side of the ledger, revenue will drop about 5%, or $167 billion, as individuals and companies see their incomes — and therefore their tax bills — cut.
The federal budget picture has been deteriorating in recent years, with a trillion-dollar deficit already on tap for 2020 even before the pandemic.
But analysts said the new numbers mark a dramatic escalation, with debt topping the size of the U.S. economy 10 years sooner.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called the projections “truly eye-popping.”
She said the heavy borrowing to combat the pandemic is a necessary cost, and said it doesn’t mean the assistance should end. But she said it should be accompanied by a commitment from Washington — and whoever the president is on Jan. 20 — to tackle the debt once the pandemic is surmounted.
“There was no excuse for entering this crisis with trillion-dollar annual deficits, nor continuing that level of borrowing once the pandemic ends and the economy normalizes,” she said.
In a separate report Wednesday CBO analyzed the deteriorating situation in the government’s big trust fund programs such as Social Security and Medicare.
Social Security is already running a deficit when comparing basic income to payouts, but has been coasting on interest on cash in its trust funds to make ends meet. But by 2021 the demands on the program will be so large that even with interest income, the payouts will be too much, and the combined trust funds will begin to be depleted.
The Disability Insurance Trust Fund, the smaller of the two, will run out of cash in 2026. The Old Age and Survivors Insurance trust fund, the larger, will still have money at the end of the decade, but it will quickly be depleting.
It stands at $2.8 trillion now, but will drop under $2 trillion by 2026, and will be just $533 billion in 2030.
It will be completely exhausted in 2032, which is one year earlier than CBO calculated in last year’s projections update.