September 01, 2020
September 01, 2020
Recent federal budgeting has been characterized as a series of deals between the Administration and the Congress to raise the spending caps imposed by the Budget Control Act of 2011 and to lessen the magnitude of the spending controls included in that statute. Adding to the fiscal stress resulting from that additional spending, a package of tax reduction measures was enacted that have had the effect of substantially increasing the size of annual budget deficits.
In January 2017, CBO estimated near-term annual deficits at about half a billion dollars – $1.6 trillion over the 2017-2019 period. Given higher spending caps and new tax cuts, actual deficits over the 2017-2019 period totaled $2.4 trillion, about $800 billion more than forecast. The 10-year (2018-2027) forecast at that time was for an additional $9.4 trillion to be added to the national debt. By January 2020, CBO had significantly increased its estimates to show deficits exceeding $1 trillion each year, totaling $13.1 trillion over the 2021-2030 period. Now, with the COVID-19 pandemic, the annual deficit will be $3 trillion or more in FY 2020—and possibly beyond.
The practice of routinely spending significantly more than available revenues has caused some policymakers to question whether deficits matter. The generic question, at least, returned as part of the popular discourse after the 2018 Congressional elections and again during the 2020 Presidential election because a number of candidates have proposed ambitious spending programs (e.g., Green New Deal, Medicare-for-All, major infrastructure improvement programs) that would require substantial additional federal spending—and larger deficits if not offset with higher taxes.
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