The huge surge in June pushed the budget deficit for the first nine months of the fiscal year to $2.7 trillion.
June’s deficit figures highlight just how much havoc the coronavirus pandemic has wreaked on U.S. budgeting. In prior years, the federal deficit was considered large when it approached or eclipsed $1 trillion for an entire year. The United States spent about $2 trillion more than it took in via tax revenue from April to June alone.
Congress in March approved $2 trillion in spending that took several months to take effect as the economy contracted because of the pandemic. Those efforts included larger benefits for unemployed Americans, $1,200 stimulus payments and small-business relief. Economists say that the funding was badly needed to prevent tens of millions of Americans from being hurt by the pandemic and that more remains necessary.
“Big government deficits are the only thing keeping the U.S. economy on life support, and anti-deficit rhetoric threatens to pull the plug,” said Nathan Tankus, research director at the Modern Money Network. “The alternative is mass defaults, evictions and bankruptcies, which will devastate the United States.”
The big increase in the deficit from May to June is largely due to an accounting change related to the more than $500 billion in small-business aid approved by Congress through the Paycheck Protection Program. Previously, the Treasury Department did not count the PPP’s forgivable loans as spending, but that changed from April to June. Most of the PPP loans to companies are expected to be forgiven and paid off by the government.
Some budget experts predict U.S. spending will have to be cut after the economy improves. The current deficit is more than triple what was lodged over the same period last year. Before the pandemic, the previous biggest one-month deficit in the United States was $234 billion.
“Today’s record deficits are mainly a product of our response to the current pandemic,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget. “Once the economy recovers, we need to get our deficit under control.”
Numerous White House officials and conservative Republican lawmakers have expressed frustration with the amount of spending approved by Congress and stressed caution over further efforts. As a result, the GOP opted for a wait-and-see approach while House Democrats approved more than $3 trillion in new spending in May. Concerns about the deficit have affected the current round of negotiations, with some White House and GOP officials pushing for the next stimulus package to cost only $1 trillion.
Discussions are expected to pick up in the coming days as officials must decide what to do with expiring emergency unemployment benefits.
Except for a brief period at the end of the Clinton administration, the federal government has traditionally spent more money than it brings in through taxes and other revenue. To cover the difference, the government issues debt.
Interest rates are very low, which makes this debt cheap to finance, but the debt continues to accumulate at a very rapid pace. The government ran a deficit that exceeded $1 trillion in 2009, 2010, 2011 and 2012 because of the impact of the financial crisis, but the one-year deficit contracted and was $442 billion in 2015.
The Trump administration, through a combination of tax cuts and spending increases, pushed to expand the deficit again, and it reached $984 billion in the fiscal year that ended Sept. 30, several months before the pandemic reached the United States.