The federal budget deficit widened to a record $738 billion in April, as the government’s efforts to combat the coronavirus pandemic led to massive levels of new spending and sharply lower tax collections, the Treasury Department said Tuesday.
Independent analysts have projected the annual deficit could exceed $4 trillion by the end of this fiscal year, which concludes at the end of September. Lawmakers are already at work on a fifth relief package as unemployment rises to levels not seen since the Great Depression.
“We have run $1 trillion deficits annually only four times in American history. At this point in the pandemic and recession, we are looking at costs of close to $1 trillion per month,” said Brian Riedl, a policy analyst at the libertarian-leaning Manhattan Institute.
The deficits for April were driven primarily by an increase in spending. The $980 billion the United States spent in April 2020 was largely a result of the Cares Act, which Congress approved in late March. In April 2019, the government spent just $375 billion.
Because the government spends more money than it brings in through revenue, it borrows money to cover the difference by issuing debt. The Treasury Department recently said it planned to borrow $3 trillion between April and June to cover all of its new planned spending.
Typically, even when deficits are high, the United States runs a surplus in April as millions of Americans pay their taxes to the Internal Revenue Service. But this year, the Treasury Department postponed many taxes until July, and a sharp economic contraction is also expected to dry up new revenue. Numerous economists argue that additional spending is necessary, as the threat of inflation remains low and Americans across the country are hit by economic hardship.
“Every dollar of deficit spending is absolutely worth it. Congress is the only one that does not have to balance its budget today,” said Claudia Sahm, the director of macroeconomic policy at the Washington Center for Equitable Growth. “If Congress does not spend trillions more, we will pay for their error for a generation.”
The new deficit projections come as senior White House officials increasingly balk at the hefty price tag of the efforts to fight the virus, while House Speaker Nancy Pelosi (D-Calif.) unveils a new spending package that would cost more than $3 trillion.
The dispute could complicate federal relief efforts. Senior Trump administration officials, including new chief of staff Mark Meadows and acting budget director Russell Vought, have expressed concern about the deficit figures, according to people with knowledge of the discussions, which may make Trump less likely to cut a deal with congressional Democrats.
Meadows and leading congressional Republicans, including Senate Majority Leader Mitch McConnell (R-Ky.), have in particular expressed opposition to calls by local officials and congressional Democrats to provide hundreds of billions in additional funding for states dealing with surging deficits due to the economic contraction. Up to this point in the federal coronavirus response, Trump has largely ignored conservative angst around deficit spending.