The latest federal budget figures estimate a staggering $3.1 trillion deficit for fiscal year 2020, an amount that more than tripled last year’s shortfall.
The Congressional Budget Office published their Monthly Budget Review earlier this week, stating that the deficit is an estimated 15.2 percent of the gross domestic product (GDP) – the largest gap since 1945.
This year also marked the fifth consecutive year where the deficit increased as a percentage of GDP. Still, the $3.1 trillion deficit is $180 billion less than the shortfall the CBO initially predicted. Revenues increased by $123 billion and spending was $56 billion less than expected.
According to the CBO, fiscal year 2020 can be divided into two periods: before and after the “economic disruption” caused by state and local government responses to the coronavirus pandemic. In the first half of 2020, the deficit was roughly eight percent larger than the deficit during the same period in 2019. For the final six months, April through September, the deficit was eight times larger than the deficit for the second half of fiscal year 2019.
The substantial increase is more than twice as big as the previous record of $1.4 trillion, recorded in 2009 during former President Barack Obama’s first year in office.
Prior to the economic disruption, the spike in revenues can be attributed primarily to an increase in individual income and payroll taxes, propelled by higher wages and salaries, in addition to an increase in corporate income tax collections.
However, in the second half of 2020, individual income and payroll taxes decreased by a massive $123 billion. The seven percent drop reflects declines in wages and “other economic activity,” as well as legislation providing Americans with economic relief.
Total government spending amounted to nearly $6.6 trillion, a 47 percent spike largely attributed to the federal government’s COVID-19 response. The two biggest factors in the increased spending were the Small Business Administration’s $578 billion Paycheck Protection Program and a $443 billion increase in spending for unemployment compensation when compared to the same period last year.
Despite the already massive deficit increase, the Trump administration and Congress are in talks to provide another round of COVID-19 relief that is likely to include at least a $1,200 stimulus check for individual Americans.
The CBO estimate is based on data from the Daily Treasury Statements issued by the Department of the Treasury. The actual deficit for fiscal year 2020 will be released in late October.