Thanks to the economic crisis exacerbated by the coronavirus shutdown, the federal government's accumulated debt burden is projected to be larger than the overall economy next year. This is a first for the nation since 1946.
The nonpartisan Congressional Budget Office announced that the deficit to reach $3.3 trillion in the fiscal year ending this month. That's about 16% of GDP — a level not seen since the end of World War II in 1945. Federal spending has soared to 32% of GDP this fiscal year as the government mobilizes in response to the pandemic, which has claimed 180,000 lives among the 6 million infected. This affects the tax revenue of the nation, which is 16% of GDP this fiscal year — down from 16.3% last year and 18% in 2015. Next year's deficit is expected to be 8.6% of GDP.
“It was a massive rise in borrowing and quite shocking, but incredibly effective,” said former CBO chief economist Wendy Edelberg, who in June became director of the Hamilton Project, a think tank affiliated with the Brookings Institution. “On the flip side, this is exactly why we, as a country, want to have room to increase borrowing during times of emergency.”
“In the short term you have to spend what it takes to minimize the recession and keep the economy afloat,” said Brian Riedl, a senior fellow at the conservative Manhattan Institute for Policy Research. “But the soaring debt to GDP ratio is totally unsustainable, even if interest rates remain low.”
“I think we’re going to continue to see the U.S. economy recover,” Tyler Goodspeed, the acting chairman of President Trump’s Council of Economic Advisers, said at a press briefing last month. “It would recover a lot faster, and with much less long-term scarring, with additional support.”