The United States entered the current public health and economic crisis facing high levels of debt and trillion-dollar deficits. Due to the effects of the crisis and legislation enacted to combat it, debt and deficits will now grow much higher, to never-before-seen levels both in dollars and as a share of Gross Domestic Product (GDP).
Our latest projections find that under current law, budget deficits will total more than $3.8 trillion (18.7 percent of GDP) this year and $2.1 trillion (9.7 percent of GDP) in 2021. We project debt held by the public will exceed the size of the economy by the end of Fiscal Year 2020 and eclipse the prior record set after World War II by 2023. 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.
The projections also assume the economy experiences a strong recovery in 2021 and fully returns to its pre-crisis trajectory by 2025. Assuming a slower and weaker recovery (but no changes in law), we estimate debt would grow to 117 percent of GDP by 2025. Like the record levels of borrowing undertaken during World War II, a large share of today’s massive deficits are both inevitable and necessary in light of the current pandemic crisis.
As Committee for a Responsible Federal Budget president Maya MacGuineas explained recently, “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.” But just as World War II was followed by years of fiscal responsibility to restore debt to historic levels, it will be important after the crisis and recovery to ensure that debt and deficits return to more sustainable levels.
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