Market Watch: U.S. Closes in on Something it Hasn't Done Since WWII - Borrow More Money Than it Raises

August 17, 2020

Article by Jonathan Nicholson Market Watch

Amid the economic devastation caused by the coronavirus pandemic, the U.S. government is nearing a new — and potentially ominous — fiscal milestone: it will borrow as much or more this year than it raises through taxes and other means.

The last time that happened was in the final year of World War II in 1945. According to White House Council of Economic Advisers data, the government raised $45.2 billion but ran a deficit of $47.6 billion that year.

Through July, the government had raised $2.824 trillion in revenue, mostly through income taxes and payroll taxes. But it had spent $5.631 trillion, leaving a hole of $2.807 trillion filled by borrowing.

In 1945, the U.S. was in the final chapter of a two-front global war. Now, it is trying to deal with a worldwide pandemic, one that socked state and federal revenues as jobs disappeared. It also required higher government spending, as Congress and the White House agreed on $2.4 trillion in COVID-19 relief earlier this year.

Shai Akabas, director of economic policy at the Bipartisan Policy Institute, noted the nonpartisan Congressional Budget Office said in June it expected a $3.7 trillion deficit for the fiscal year, which ends Sept. 30.

“That figure will rise if Congress passes further legislation next month before the end of the fiscal year. All told, I think it’s a pretty safe bet that the deficit ends up exceeding revenue, meaning that revenues covered less than half of all the spending we did this year,” he said in an email.

Spending more from borrowed money than from revenues would mark another milestone in a year that has blown up most expectations. The deficit will be the largest ever in terms of sheer dollar size, far surpassing 2009’s $1.413 trillion.

Still, the growing debt was enough to make Fitch Ratings in July downgrade its prognosis for U.S. Treasury debt ahead, changing its outlook ...

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