US Government Debt to Roughly Equal Size of Economy in 2020, 2021

2020-09-02

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WASHINGTON - The amount of debt held by the U.S. government by the end of 2020 will roughly equal the size of the American economy, and will surpass it in 2021, the nonpartisan Congressional Budget Office said Wednesday.

The CBO said the fiscal imbalance has not been seen in the United States since the end of World War II.

By the end of this year, the congressional analysts said, the amount of debt owed by the U.S. will amount to 98% of the nation's gross domestic product of about $19 trillion and surpass the U.S. economy's size next year.

The reason is simple: Vast government aid to businesses, most U.S. households and unemployed workers impacted by the coronavirus pandemic has ballooned the government's deficit.

The last time the U.S. debt level exceeded the country's economic output was in 1946, when it was at 106% after years of military spending to help end World War II.

The government's annual budget deficit is projected to expand to $3.3 trillion by the end of the fiscal year on September 30, more than triple from a year ago. The deficit was already increasing sharply with government tax cuts approved by Congress and spending increases, but the pandemic pushed the yearly deficit even higher.

The public, including individual investors, U.S. banks and foreign governments, and U.S. state and local governments hold $20 trillion, or 77%, of the national debt of more than $26 trillion, while the remainder of the debts are intragovernmental holdings, such as money for pensions and health care for older Americans.

With the extra pandemic spending, the U.S. annual federal deficit in 2020 is expected to equal about 16% of the national economy, which would be the largest amount since 1945.

Lawmakers have often said they want to bring the deficit below 3%, though some Republicans frequently say they want to eliminate the deficit altogether.

The deficit spending was viewed as a necessity to help the country's economy, the world's largest, regain its footing from the devastation wreaked by the pandemic. Millions of workers remain unemployed in the U.S.

Now, however, two months before the national presidential and congressional elections, there is no consensus on how much more coronavirus aid should be approved, with Republicans and the Trump administration agreeing to a $1.3 trillion deal and Democrats calling for $2.2 trillion.

An extra $600-a-week national government boost to less generous state unemployment benefits expired at the end of July. President Donald Trump signed an executive order reinstating $400-a-week extra payments, but states have been slow to implement it, and only six of the 50 states have started sending money to jobless workers.

Even as Congress approved coronavirus relief aid earlier this year, tax revenues dropped, as businesses closed for weeks under state government orders or shut down permanently.

The Trump administration and Congress delayed payment of some tax obligations, with individual income taxes dropping by about $200 billion, the CBO projected, while corporate income taxes fell by about $80 billion.