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Deficit to reach record $3.3 trillion: CBO

Deficit to reach record $3.3 trillion: CBO
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The federal deficit is expected to reach a record $3.3 trillion this year, more than twice the largest level on record, but lower than earlier estimates, according to new Congressional Budget Office (CBO) projections.

The deficit will amount to 16 percent of gross domestic product (GDP), the largest since 1945.

The explosion in the deficit follows a massive government response to the COVID-19 pandemic and the economic devastation it caused.

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Congress passed some $3.6 trillion worth of stimulus, health and emergency relief measures to save the economy.

That, along with deep monetary interventions from the Federal Reserve, may have staved off an even worse economic outlook. Earlier estimates had pegged the annual deficit even higher, closer to $3.8 trillion.

The report released Wednesday also found that the nation's debt burden is on track to surpass 100 percent of GDP for the first time since World War II in 2021 but remain at 98 percent this year, another retreat from some earlier estimates.

That estimate is up from 79 percent last year and 35 percent in 2007, before the Great Recession. 

While there's no particular economic significance to having the amount a government owes its creditors exceed its total production for the year, it marks an important psychological milestone.

Even before the pandemic, the deficit was expected to surpass $1 trillion for the first time since the Great Recession this year, as deep tax cuts, increased spending and demographic changes increased the gap between how much the government takes in and must pay out each year.

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Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that Congress will need to figure out how to handle the growing debt burden once the pandemic is over and the economy returns to surer footing.

"What should be absolutely clear from today’s report is that after the virus is contained and the economy has recovered, lawmakers cannot afford to continue ignoring the trajectory of our debt any longer," she said.

Updated at 2:28 p.m.