US Budget Gap Tripled to Record $3.1 Trillion in Fiscal 2020

The U.S. deficit tripled in fiscal year 2020 due to  COVID-19 rescue packages the U.S. Treasury Department said Friday. File

The Treasury said the budget deficit in September, the last month of the fiscal year, was $ 125 billion, compared to a $ 83 billion surplus in September 2019.

Budget deficit for the fiscal year, which ended September 30, was $2.1 trillion higher than that of the prior year, according to the final budget results for fiscal year 2020 jointly released by Treasury Department and White House Office of Management and Budget on Friday.

In tandem, Friday's joint statement from the US Treasury alongside the Trump Administration had also indicated a plunge of $203 billion in individual income taxes from the Government's February projection, while corporate income taxes were jolted $51.8 billion from a February forecast.

Federal revenue from taxes, fees, and other charges totaled $3.42 trillion, a one percent decline from the 2019 fiscal year, due to the contraction of the economy as the pandemic and measures to fight its spread took hold.

Following the 2008 global financial crisis and economic downturn, there were fierce budget battles to reduce the size of the deficit between the Obama White House and conservatives in Congress. That spending reflects the relief programs Congress passed in the spring to support the economy as millions of Americans were losing their jobs. Indeed, the US government appears to be far from the limits of its borrowing capacity and the Federal Reserve does not think inflation will rise to its two-percent target for years to come.

While lawmakers and the administration agree on the need for a bill, they remain far apart on the size. Trump also said faster economic growth would erase the USA debt burden, although budget experts say spending cuts or tax hikes would be necessary to do so. Advertisement Receipts reached $3.4 trillion, reflecting a drop in tax income from the year-ago period as Americans struggled through the once-in-a-century pandemic.

The cost of servicing the debt owed by the federal government declined by nine percent a year ago due to falling rates. This year, in reaction to the pandemic, the Fed dropped its interest rate target to almost zero and announced a new policy more tolerant of inflation that will likely keep rates lower than they would have been otherwise.

Underscoring the massive fiscal relief efforts this year, the Treasury's report showed $275 billion in outlays for federal additional unemployment compensation that included the now-expired $600 supplemental weekly jobless payments.

The low interest rates are a key reason economists are not as concerned about the rising debt burden caused by the deficit.

"Most of the increase in the deficit relative to past year is higher spending as a result of covid relief", said Marc Goldwein, a budget expert at the Committee for a Responsible Federal Budget, which advocates for reducing the deficit. The federal deficit is approaching 100 percent of GDP and is projected to top that amount in 2021.

"It is hard to believe we now owe a full year's worth of output", said Maya MacGuineas, president of the committee.

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