The Congressional Budget Office says the federal government is on track for a $2.3 trillion deficit this year, down roughly $900 billion from last year when the coronavirus caused Congress to provide historic amounts of financial aid
Stronger economic growth has helped to reduce the anticipated shortfall for this year. Still, the deficit could soon be revised upward if President Joe Biden’s $1.9 trillion coronavirus relief package becomes law. The additional aid — coming after roughly $4 trillion was approved last year — would add more red ink once enacted, but isn’t included in Thursday’s CBO projections.
Excluding the Biden plan, this year’s deficit will equal 10.3% of gross domestic product, which is a measure of the total value of the economy’s goods and services. The past two years have the highest deficits relative to GDP since 1945.
The CBO expects the budget deficit to fall to about $1 trillion in 2022 as the economy heals and there is less need for government spending. Deficits are supposed to average 4.4% of GDP from 2022 to 2031.
Several decades of deficit spending has meant that the total federal debt held by the public is slightly larger than GDP. That figure is projected to rise to 107% of GDP by 2031 as spending on Medicare and Social Security increases.
Shai Akabas, economic policy director at the Bipartisan Policy Center, said that additional coronavirus relief should be a priority, cautioning that the country still needs to find a way to put the deficit on a safer path.
“When it comes to recovery, the country faces many challenges that are likely to require an infusion of federal resources,” Akbas said. “But it is crucial that lawmakers balance any new investment with a commitment to stabilizing the precarious fiscal picture that CBO highlighted today. In this realm, ‘wait and see’ is not a strategy — it is a fiscal risk.”
