Federal Debt as a Percentage of U.S. GDP 1966 - 2019 Source: Graph from Federal Reserve Economic Database (FRED) based on data from the U.S. Office of Management and Budget
Going forward, the deficits will have to be dealt with. The pending deficit should provide a needed short-term boost to the economy. However, long-term changes in tax policy and/or government spending, will have to be made. That could create some interesting political battles, because the deficits will likely be significant and be a long- term detriment to economic growth. (The Trump Administration had already proposed reductions to Social Security programs in its fiscal 2020 budget prior to the coronavirus). Although the fiscal stimulus spending will subside, tax revenues may take some time to recover. The coronavirus may also change the preferences of the public as to how the government spends its money. Healthcare and social programs became prominent topics of discussion once again with the impact of the coronavirus. And regarding those “social programs”, over the past decade there has been government spending on numerous individual and corporate social programs, including Social Security, the Financial Crisis bailouts (a $700 billion Toxic Asset Relief Program to purchase bad loans and investments from financial institutions; $80 billion to GM and Chrysler to remain solvent), and the Phase III coronavirus stimulus ($500 billion to distressed corporations and $377 to small businesses in addition to direct payments to individuals and expanded unemployment insurance). The bottom line – government spending has included both individual and corporate social programs. On the revenue side, changes in tax policy have lowered corporate tax revenues relative to individual tax revenues. Going forward, changes will likely be made to government spending and/or tax revenues. Exactly what those changes are will likely be the subject of much political debate. One final point. The deficit problem will impact both states and the federal government. Tax revenues will shrink in combination with increased costs related to the pandemic – for both.
For further information: 1. From the St. Louis Federal Reserve database: U.S. Federal Debt as a Percentage of GDP U.S. Budget Surplus or Deficit 2. From the congressional Budget Office, budget projections: https://www.cbo.gov/topics/budget 3. From the Office of Management and Budget, tax revenue by source: https://www.whitehouse.gov/omb/historical-tables
Center for Business and Economic Insight - CBEI EXTRA!
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