Federal debt to exceed GDP for first time since World War II: watchdog
Debt held by the public is on track to exceed the size of the entire U.S. economy this year for the first time since World War II, according to a new analysis by the Committee for a Responsible Federal Budget (CRFB).
According to projections from the group, which advocates for lowering the federal debt, the deficit for fiscal 2020 will exceed $3.8 trillion, more than 2.5 times the record set during the Great Recession.
The annual deficit, the amount the government has to borrow to pay its bills, adds to the overall accumulated debt the government must eventually pay off.
Since gross domestic product (GDP) last year was $21.4 trillion and expected to shrink this year, U.S. debt is projected to exceed about $20 trillion, according to the watchdog.
In its January budget outlook, the nonpartisan Congressional Budget Office projected that the nation’s accumulated debt, while on a steady upward trajectory, was set to hit 98 percent of GDP within a decade.
It will now surpass that level before the fiscal year ends on Sept. 30, according to CRFB.
While borrowing has been necessary to avert economic catastrophe during the pandemic, CRFB said, the government will require major plans to find a fiscally sustainable path once the crisis ends.
“Like the record levels of borrowing undertaken during World War II, a large share of today’s massive deficits are both inevitable and necessary in light of the current pandemic crisis,” the group said in its report Monday.
“Combating this public health crisis and preventing the economy from falling into a depression will require a tremendous amount of resources – and if ever there were a time to borrow those resources from the future, it is now,” CRFB President Maya MacGuineas added in a statement.
Even before the crisis, deficits had ballooned under President Trump’s watch, as the GOP enacted tax cuts and increased defense spending and Democrats pushed for higher domestic spending.
Even before Congress passed the historic $2.2 trillion emergency relief measure last month, the annual deficit through March had risen to $743.6 billion, 7.6 percent higher than the previous year. The U.S. was also projected by several groups to see its first $1 trillion deficit since 2012.
Final deficit figures for 2020 are likely to be even higher.
The CRFB analysis focused on current law, and did not take into account new proposals in Congress. Senate Republicans are pushing to add $250 billion to support small-business loans as soon as this week, while Democrats also want that amount and another $250 billion for depleted state budgets and hospitals.
A further economic relief bill is expected down the road as the nation faces potentially record-breaking levels of unemployment and a sharp, Depression-level contraction in the economy, though many economists are optimistic for a quick recovery once the worst of the coronavirus pandemic has passed.
In the long run, large debt burdens can slow economic growth, raise interest rates and lead interest payments to consume an increasingly large proportion of the federal budget each year, potentially crowding out spending on other priorities.