WASHINGTON – The U.S. deficit tripled to a record $ 3.1 trillion in the fiscal year ending Sept. 30, as the government battled a global pandemic that plunged the U.S. into a recession in February, the Treasury said Friday.
An increase in federal spending on fighting the coronavirus and dampening the U.S. economy combined with a decline in federal revenue amid extensive shutdowns and layoffs contributed to the growing deficit. As a share of economic output, the budget gap in the financial year 2020 hit approx. 16.1%, the largest since 1945, when the country funded massive military operations to help end World War II.
Federal revenue was $ 3.4 trillion, down 1% from the year before, much of the decline since March, when the virus began to spread across the country. Federal spending rose 47% to a record $ 6.5 trillion as the government distributed emergency loans to small businesses and improved unemployment benefits and incentive payments to U.S. households.
Federal debt rose 25% for the year to $ 21
With another measure, the debt already exceeded the size of the economy in the quarter of April-June, reaching 105.2%, data from the Federal Reserve Bank of St. Louis.
However, historically low interest rates and low inflation meant that the cost of servicing higher government debt fell. The net interest cost to the public fell 9% last year from the year before, the Treasury said, suggesting the government has the capacity to borrow more to fund the recovery.
Research and economic data show that unprecedented emergency spending – the bulk of which was passed in the $ 2.2 trillion Care Act in March – helped keep households and businesses afloat in the first months of the downturn, boosting incomes and boosting consumer demand .
With more than 10 million people still out of work, there are signs that the momentum of the recovery is waning when federal aid programs expire. Economists and policy makers, including Federal Reserve President Jerome Powell, have warned that growth could slow further unless Congress adopts further help.
Republicans in Congress have avoided yet another major financial aid proposal pointing to the huge budget shortfalls this year and rising federal debt as a reason to hold back on more spending.
Until March, the budget gap for 2020 largely reflected the deficit in the same period in 2019. Federal spending from October to March rose 6.8%, while revenue rose 6.4%, officials said.
In contrast, spending from April to September was almost twice as high as in the same period of six months the year before, and revenues plummeted 7.1%. That caused the deficit to rise 715% in the second half of the year compared to the same period in 2019, Treasury officials said.
Much of the increase in spending could be linked to efforts to mitigate the economic downturn caused by the pandemic, officials said. Consumption from the Small Business Administration, which administered the small business wage protection program, totaled $ 577 billion, compared to $ 456 million the year before. The Department of Labor’s spending, which manages unemployment benefits, jumped to $ 477 billion. In 2020 from $ 36.4 billion. In the financial year 2019.
Expenditure on other safety net programs, including Medicaid, Social Security and Nutrition Assistance, also increased, along with spending on new programs such as the Coronavirus Aid Fund for Cities and States and one-time payments of $ 1,200 to households.
In the first half of the fiscal year 2020, federal revenues rose as a strong economy and low unemployment increased corporate and individual tax revenues. From April to October, however, revenues fell as the virus halted economic activity, companies shut down, and more than 20 million workers lost their jobs.
Individual income and payroll taxes fell 7% in the second half of the year, while gross corporate tax revenues fell 15%, in part because of measures Congress passed to help reduce taxes this year for companies facing revenue losses, Treasury said. officials.
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