WASHINGTON — The U.S. government’s war against the coronavirus is imposing the heaviest strain on the Treasury since America’s drive to defeat Nazi Germany and imperial Japan three-quarters of a century ago.
The Congressional Budget Office has warned that the government this year will run the largest budget deficit, as a share of the economy, since 1945, when World War II ended. Next year, the federal debt — the sum of the year-after-year gush of annual deficits — is forecast to exceed the size of the entire American economy for the first time since 1946.
It might be surprising to hear that most economists consider the money well-spent — or at least necessary. Few think it’s wise to quibble with the amount of borrowing deemed necessary to sustain American households and businesses through the gravest public health crisis in more than 100 years. That’s especially true, economists say, when the government’s borrowing costs are super-low and investors still seem eager to buy its debt as fast as the Treasury issues it.
JUST HOW MUCH MONEY ARE WE TALKING ABOUT?
The annual deficit — the gap between what the government spends and what it collects in taxes — will hit $3.3 trillion in the budget year that ends Sept. 30, the CBO projects. That amounts to 16 percent of America’s gross domestic product, which is the broadest measure of economic output. Not in 75 years has a deficit been that wide.
The federal debt, reflecting the accumulated deficits and the occasional surplus, is forecast to reach 100 percent of GDP next year. Then it is predicted to keep climbing to $24.5 trillion — 107 percent of GDP — in 2023. That would snap the record of 106 percent of GDP set in 1946.
WHY IS THE BUDGET SO LOPSIDED?
The U.S. government was already deeply in debt even before the virus struck in March. The budget had absorbed the expenses of the 2007-2009 Great Recession, the federal benefits for the retirements of the vast baby boom generation and the cost of President Donald Trump’s 2017 tax cut. Last year, the debt burden reached 79 percent of GDP, the highest since 1948.
Then came the pandemic. The economy tumbled into a sickening free-fall as businesses shut down and millions of Americans hunkered down at home to avoid infection. GDP collapsed at a 31.7 percent annual rate from April through June, the worst three months on records dating to 1947. In March and April combined, employers slashed a record 22 million jobs.
To help Americans to endure the crisis, Congress passed a $2 trillion relief bill in March. Economists say that the rescue probably helped keep the economy from sinking into a depression but also that much more assistance is needed.
CAN THE U.S. REPAY ALL THAT MONEY?
After World War II, the United States paid down the federal debt with surprising speed. By 1961, the debt had dropped to 44 percent of GDP, the same level as in the prewar year of 1940.
Behind that success was a fast-growing economy that delivered rising revenue to the government and erased the debt. From 1947 through 1961 the economy grew at a 3.3 percent annual rate. Circumstances are somewhat different now. The economy doesn’t grow as fast as it did in the postwar boom years. Since 2010, GDP growth has averaged just 2.3 percent, even excluding this year’s economic implosion.
