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US Budget Deficit Hits Record-High of $864 Billion in June Because of Coronavirus Response

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US Budget Deficit Hits Record-High of $864 Billion in June Because of Coronavirus Response

2020-07-14 13:22:57

By Laura Tucker, Staff writer; Image Steve Mnuchin (Image source: Screenshot)

The coronavirus pandemic is turning out to be very expensive for the United States, causing it to hit a record-high budget deficit of $864 billion last month, thanks to stimulus payments, unemployed benefits, small business loans, etc. And the Treasury Department said on Monday that deficit is only expected to grow because of the surge in cases.

The budget deficit nearly reached $1 trillion in 2019, and for the first nine months of fiscal 2020, it's quickly approaching $3 trillion, with the expectation of it to continue growing. The federal government is heading toward borrowing more money than it has since World War II.

This is the direct result of the collapse of the economy and Congress's efforts to revive it. Lawmakers have given out nearly $3 trillion so far and are in discussions to spend more in light of continuing layoffs, foreclosures, and other economic stress. While Donald Trump was hoping that a grand reopening of the country would lead to the economy picking up, and while there were initially job gains in May and June, the economic outlook has reversed itself with the surge in coronavirus cases in Texas, Arizona, Florida, and California.

Democrats and some Republicans believe the answer is to spend on more stimulus measures. "We should not be taking our foot off the gas here," said Sen. Michael Bennet (D-CO). He is behind legislation that would automatically continue aid to people and businesses until the economy improves. "We have to bridge the American people across the threshold, to a point where people feel more certain about public health."

Conservative economists, previously, warned that an excess in borrowing is a risk for slowing the growth of the economy, which leads to an increase in borrowing costs for businesses and consumer prices.

But Michael R. Strain of the American Enterprise Institute and R. Glenn Hubbard of Columbia University, along with some of the other conservative economists, now believe additional spending is needed. They believe recent economic data shows that larger deficits will be needed to forge ahead. This includes more stimulus payments to individuals.

While Trump campaigned on balancing the budget within two terms, he hasn't done much to cut spending and doesn't promote the "fiscal conservatism" that many in the GOP do. Instead, he spent much on the military and pushed a huge tax cut that so far has not improved the economic situation as promised.

Treasury Secretary Steve Mnuchin does not appear to be worried, downplaying concerns. He has argued that borrowing costs remain low and that the government needs to spend whatever it needs to come out of the pandemic with the economy on the right side of things. He'd like to see the deficit dealt with in the long term with spending cuts and policies designed to bring on economic growth.

The Paycheck Protection Program is behind much of the June deficit. The program approved more than $500 billion in small business loans. A Treasury official explained that the loans have not been forgiven yet still need to be listed as an expenditure.

Government outlays went beyond $1.1 trillion last month, with receipts down because of income tax filing being deferred until July 15. June's deficit was higher than the entire budget deficit for 2018. The previous high was $738 billion set this past April. The entire deficit for all of 2019 was just $984 billion. The deficit for June 2019 was just $8 billion.

In the midst of discussions over whether more stimulus payments are necessary, Senate Majority Leader Mitch McConnell (R-KY) said in April, "We can't borrow enough money to solve the problem indefinitely."

While plans for more stimulus packages have stalled, mostly because Democrats and Republicans don't agree on the urgency of spending, both sides continue to consider new plans.

Monthly job reports are indicating to some Republican lawmakers that the labor market may be recovering more quickly than expected. The White House still doesn't want to tack on more to the deficit until the effects of the earlier stimulus package are known.

House Speaker Nancy Pelosi (D-CA) is still gunning for more stimulus support. "If we don't make the investments, including putting money in the pockets of the American people with unemployment insurance and direct payments, including honoring our heroes, our health care workers, our transit, teachers, sanitation workers, the — our public employees," she said, "If we don't put that money there, we're not going to be able — we're going to pay a big price, worse hit on the economy. "

The Congressional Budget Office projected in June that the pandemic would cost the economy about $16 trillion over 10 years. 

"These historically-high deficits are driven largely by the necessary response to the pandemic, but once we have defeated this virus, we will need to address our damaged fiscal outlook," said Michael A. Peterson, the chief executive of the nonpartisan Peter G. Peterson Foundation.

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