The resulting deficit is the third largest ever in American history, Treasury officials said, eclipsed only by April and June of last year — when the U.S. authorized larger levels of emergency spending to head off the economic crisis caused by the pandemic. The monthly deficit had contracted relative to the summer months as federal spending expired and the U.S. economy began to heal. Many economists and lawmakers clamored for the additional spending as necessary to help the economy recovery from one of the worst shocks in decades, with millions of workers still out of a job.
Over the first six months of the current fiscal year, the government’s budget deficit has reached $1.7 trillion, a massive sum for this early in the year. America’s annual deficit hit $3.1 trillion in 2020, an all-time high that far surpassed the previous record of $1.4 trillion, which came in 2009 during the depths of the Great Recession. Democrats and Republicans authorized much of the emergency spending last year as a way to try and stop an economic collapse. They are at odds, though, over spending levels in 2021.
The government has to borrow money to cover deficits, and it does this by issuing debt. Interest rates are relatively low, which has made it cheaper to borrow, but the federal debt has grown markedly in the past year.
More than $330 billion in stimulus payments — more than half the total — were sent in March and included in that month’s data. Still, budget experts say higher-than-usual deficit totals are likely to continue for the rest of the year. On a call with reporters, Treasury officials noted that all the funding from last year’s Cares Act and the rescue plan had not yet been allocated.
“This is going to be a big deficit year because we were already running substantial deficits and passed a $1.9 trillion bill,” said Marc Goldwein, a budget expert at the Committee for a Responsible Federal Budget, which advocates for lowering the deficit. “This is not higher than expected. It’s what you’d expect with a $1.9 trillion stimulus on top of a structural deficit.”
After adding virtually all the $1.9 trillion relief plan to the national debt, the Biden administration has pushed other plans that would not widen the nation’s fiscal imbalance. The administration has said its $2 trillion jobs and infrastructure plan, released last month, would be paid for by raising more than $2 trillion in taxes on corporations. The decision to pay for the next spending package in full came amid criticisms from some economists that the administration risked authorization so much deficit spending that it would spark inflation.
Other economists have argued lawmakers need to ensure that government support for the economy does not fade too quickly. Nathan Tankus, research director of the Modern Money Network, said America still has about 8 million fewer jobs than it did one year ago. The unemployment rate for the bottom quarter of earners remained above 20 percent as recently as February, with some sectors badly scarred by covid.
“Filling that gap is going to require quite a substantial amount of government spending, and policymakers should not lose their nerve simply because the immediate crisis is waning,” Tankus said. “We learned the lesson from the financial crisis about the dangers of standing down too soon.”
The Treasury official said the one-month delay of the tax filing season from April to May did not likely account for the higher deficit number, given those payments typically do not come in until April anyway.