The Gap Between Federal Spending and Revenues Has Grown Rapidly During the Pandemic
The economic disruption caused by the coronavirus (COVID-19) pandemic and the federal government’s response to it has widened the gap between spending and revenues in the budget. The growth in spending has been driven by legislative actions, particularly provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act such as Economic Impact Payments, the Paycheck Protection Program, and additional unemployment compensation.
Provisions in the CARES Act and the Families First Coronavirus Response Act also diminished revenues sharply by deferring some payroll taxes, creating tax credits for employers to retain workers and provide sick leave, and allowing greater use of losses to offset taxable income. The recent uptick in revenues mostly reflects activity that would have occurred earlier in the year if the Administration had not postponed the tax-filing deadline.
An Unsustainable Fiscal Future
The rapid increase in the gap between revenues and spending is not surprising given the devastating effects of the pandemic and the necessary fiscal response. However, the underlying structural gap is an issue that lawmakers will need to consider once the crisis has abated.
Learn more about the fiscal challenges that the U.S. was facing before the pandemic.
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Further Reading
With $37 Trillion in Debt, Is the U.S. Headed for More Credit Downgrades?
Three successive downgrades of the U.S. credit rating should alarm elected leaders, but our national debt remains on an unsustainable trajectory.
The Federal Government Has Borrowed Trillions. Who Owns All that Debt?
Most federal debt is owed to domestic holders, but foreign ownership is much higher now than it was about 50 years ago.
The Fed Reduced the Short-Term Rate, but Interest Costs Remain High
High interest rates on U.S. Treasury securities increase the federal government’s borrowing costs.