Brown on Business
July 27 - August 2, 2020
Rising nation debt, growing deficit is COVID-19’s open secret
By Wesley Brown
As Congress considers another possible $1 trillion stimulus package, the obvious “elephant in the room” that no one is talking about is the nation’s debt and rising deficit that continues to grow beyond calculations.
According to the nonpartisan Congressional Budget Office, America entered this crisis with $23 trillion in national debt and trillion-dollar annual deficits that have only been exacerbated by four rounds of emergency relief that began in early March, including the omnibus $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act.
To date, Congress has approved, and President Donald Trump has signed into law four pieces of legislation — including the Coronavirus Preparedness & Response Supplemental Appropriations Act (CPRSAA), the Families First Coronavirus Response Act (FFCRA), the CARES Act, and the Paycheck Protection Program and Health Care Enhancement Act (PPPHCEA).
CBO estimates over the next decade these bills will cost a combined $2.4 trillion. However, when considering loans that will be repaid and other temporary COVID-19 relief measures, Congress has allocated nearly $3.6 trillion to keep the U.S. economy afloat – of which $1.5 trillion has already been spent.
For its part, the Federal Reserve has also committed to support the economy in a number of ways, including regular purchases of Treasuries and Mortgage-Backed Securities, establishing the Main Street Lending program and reviving other Great Recession-type programs, and buying and supporting debt from businesses, states, and municipalities.
Based on the latest estimate from the bipartisan Committee for Responsible Federal Budget (CRFB), the Fed has announced it could provide at least $5.5 trillion of support to the economy — and possibly much more. So far, it has disbursed roughly $2 trillion — mainly through loans and asset purchases.
Finally, the White House has also taken several administrative actions to support the economy, including declaring a national emergency, delaying the tax filing deadline, instituting a moratorium on federal student loan interest, and establishing a system to support food producers and distributors. CRFB estimates these actions will provide up to $380 billion in short-term economic support, mainly by delaying the tax filing deadline from April 15 to July 15. Of that total, some $300 billion has already been spent.
The CBO, the federal agency within the legislative branch that provides budget and economic information to Congress, on July 8 reported that the federal budget deficit in June 2020 was $863 billion, compared with a deficit of $8 billion a year ago. That massive 10687% spike was obviously foreseeable due to the economic disruption from the coronavirus pandemic and the ongoing federal government’s response to it.
Principally, outlays by the U.S. Small Business Administration (SBA) — which oversees the recently established Paycheck Protection Program (PPP) and the expanded — contributed significantly to the June deficit this year, accounting for almost half of the government’s spending.
Overall, the federal budget deficit was $2.7 trillion in the first nine months of fiscal year 2020, CBO estimates, $2 trillion more than the deficit recorded during the same period last year. Federal revenues were also 13% lower and spending was 49% higher through June 2020 than during the same nine-month period in fiscal year 2019.
And while there has been some mild criticism of the Trump administration’s unbridled spending before the pandemic, which also included a $1.7 trillion corporate tax cut in late 2017, most of the well-known congressional budget hawks and conservative think tanks have essentially gone silent and conceded Congress will continue down the current path.
For example, as Congress enters the next phase of COVID-19 fiscal relief talks, lawmakers are looking to offer most Americans another stimulus check, as well as extending the popular PPP and unemployment benefits that pay an extra $600 a week unemployment that expire on Aug. 8 and July 25, respectively. As negotiations start up in the U.S. Senate last week, the Trump administration is signaling it will block legislation that does not include a half-trillion-dollar payroll tax holiday.
Maya MacGuineas, president of a Committee for Responsible Federal Budget, said that one issue should not hold up relief to American taxpayers and businesses as coronavirus cases near 4 million, including topping 1,000 deaths per day for the first time on Tuesday (July 21).
“It would be a mistake to draw a red line now with negotiations just recently starting back up. With the economic recovery still fragile and our national debt fast approaching a record high, it’s crucial that Congress targets the next round of aid to address our most pressing needs as efficiently as possible,” said MacGuineas, whose committee includes policymakers from past Democratic and Republican administrations.
“A payroll tax holiday through the end of 2020 could cost more than $500 billion, a cost that should not be ignored as lawmakers weigh their options and try to come up with a plan that gets aid where it’s most needed,” continued MacGuineas. “Unnecessary borrowing will just make it that much more difficult to get the national debt under control and stabilize our fiscal and economic future.
However, MacGuineas added: “Now is not the time to be holding the entire package hostage to any one item. Rather, lawmakers should focus on what will most help the economy and show a willingness to work together.”
Yet, Adam Michel, senior policy analyst at the conservative Heritage Foundation’s Grover Hermann Center, believes U.S. lawmakers “should not heed the siren song” of more stimulus outlays.
Michel noted that as most states reopen from COVID-19 shutdowns and shelter-in-place orders, “lost jobs, business failures, and scared consumers will increase the pressure on Congress to do more.” Beside a new round of stimulus checks, current relief proposals in Congress include several bipartisan infrastructure bills and a possible $1 trillion boost for state treasuries to keep government spending elevated “in this misguided attempt to support the economy,” he said.
“The Great Recession taught a sobering lesson. The government cannot spend its way into prosperity. At best, stimulus measures are ineffective. At worst, they can delay the recovery and prolong financial hardship,” Michel wrote in a July 13 column. “Congress should not heed the siren song of stimulus spending. Instead of searching for expensive ways to prop up the economy, lawmakers should pursue cheaper effective reforms that let the economy grow sustainably, which means removing existing barriers.”
The Peter G. Peterson Foundation, which was established in 2008 to raise awareness on the impact of the nation’s growing national debt on future generations, said it is exploring the best way the nation’s recovery from the impact of COVID-19.
“Undoubtedly, this pandemic requires a strong and sustained federal response, including substantial fiscal support. Congress and the administration have already enacted significant legislative packages, but there will surely be more to do in the weeks and months ahead,” said the New York City-based conservative think tank founded by the former Nixon-era Commerce Secretary of the same name. “The Peterson Foundation’s mission is to address our nation’s long-term fiscal challenges — but that is not the most pressing issue right now.”
At some point, probably well after COVID-19 is in the rear-view mirror, the conversation concerning the nation’s debt and the unsustainable trillion-dollar annual deficit will be back on the table in Washington, D.C. When that day of reckoning comes, America may not like what it sees.