Just a few months ago, fiscal hawks bemoaned the return of trillion-dollar deficits.
What a difference a pandemic makes.
Independent forecasters now expect this year’s budget deficit to nearly quadruple the pre-coronavirus estimate, reaching nearly $4 trillion. That amount of red ink in a single fiscal year would dwarf the deficit peak of $1.4 trillion during the Great Recession and, as a share of the economy, approach levels not seen since World War II.
Congress has opened the fiscal spigot three times in the past month, pumping roughly $2.5 trillion into an economy gasping for breath amid a virtual nationwide lockdown. And lawmakers in both parties have promised that more aid will be on the way soon.
The result is some eye-popping revised forecasts of the deficit for fiscal 2020. A $1 trillion estimate made in January by the Congressional Budget Office, the official scorekeeper, is now hopelessly out of date.
Goldman Sachs estimated last week that the deficit would widen to $3.6 trillion, amounting to 17.7 percent of gross domestic product. By contrast, the deficit never reached 10 percent of GDP during the Great Recession of 2007-09, according to figures from the Congressional Budget Office.
And that estimate doesn’t account for any future bills that Congress may take up. Goldman Sachs said additional legislation is likely, amounting to perhaps $500 billion.
While the next major package may take longer, the bank said, there is little doubt that more spending is on the way.
“It would be politically unsustainable, in our view, for lawmakers to stay on the sidelines while the unemployment rate rises dramatically over the next few months,” the report said.
‘Not the time to worry’
Even most fiscal hawks aren’t opposing some deficit spending when the economy appears to be in free fall. But they say it must be tailored carefully to avoid waste.
“Now is not the time to worry about near-term deficits,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, an independent watchdog. “Combating this public health crisis and preventing the economy from falling into a depression will require a tremendous amount of resources — and if ever there were a time to borrow those resources from the future, it is now.”
The watchdog group issued its own revised projection Monday, forecasting a $3.8 trillion deficit, or 18.7 percent of GDP this year. It would fall to $2.1 trillion in fiscal 2021, which in normal times would seem gigantic.
“These projections almost certainly underestimate deficits, since they assume no further legislation is enacted to address the crisis and that policymakers stick to current law when it comes to other tax and spending policies,” MacGuineas’ group said in a blog post. “The projections also assume the economy experiences a strong recovery in 2021 and fully returns to its pre-crisis trajectory by 2025.”
G. William Hoagland, senior vice president of the Bipartisan Policy Center and a former Senate GOP budget aide, pegged the deficit at $3.9 trillion. That’s based on all legislative action to date for the pandemic, which he estimated would cost $2.6 trillion.
The biggest single legislative package, enacted last month, is expected to cost around $2.3 trillion, but does not yet have an official price tag from the Congressional Budget Office.
Mark Zandi, chief economist at Moody’s Analytics, offered a slightly rosier outlook, forecasting a deficit of about $3 trillion that amounts to 15 percent of GDP. It would fall to $2.3 trillion in fiscal 2021, or 11 percent of GDP, he said.
But if Congress makes good on promises for additional coronavirus relief aid in coming weeks, deficit projections are sure to rise further.
Scott Parkinson, vice president of government affairs for the conservative Club for Growth, sought to raise concern over the mounting red ink Monday. “Has any elected official or government agency acknowledged that the deficit for FY2020 is going to be over $5 trillion?” he tweeted.
Parkinson’s estimate assumes a new aid package of about $500 billion, and an $800 billion revenue loss from the economic shutdown. It also accounts for a future stimulus package that could include infrastructure spending and a payroll tax holiday, among other things, said Club for Growth spokesman Joe Kildea.
But Kildea said the estimate was a “personal prediction” by Parkinson and not an official forecast from his organization.
And while a $5 trillion estimate may be provocative, it’s not out of the question.
Recounting a meeting she had late last month with Federal Reserve Chairman Jerome Powell, Speaker Nancy Pelosi said the nation’s top banker was encouraging Congress to spend more.
“He told me, ‘Think big because the interest rates are low,’” the California Democrat told the PBS NewsHour, shortly before the $2.3 trillion relief package was passed. “We’re going to have to come back and put more funds in.”