The pandemic is taking a big toll on the government's bottom line.
The federal government's accumulated debt burden is projected to be larger than the overall economy next year for the first time since 1946. Debt is expected to reach an all-time high of 107% of gross domestic product in 2023.
The nonpartisan Congressional Budget Office expects the deficit to reach $3.3 trillion in the fiscal year ending this month. That's about 16% of GDP — a level not seen since the end of World War II in 1945.
Federal spending has soared to 32% of GDP this fiscal year as the government tries to address both the economic and public health costs of the pandemic. The coronavirus has infected more than 6 million people in the United States and claimed more than 180,000 lives here.
With tens of millions of people out of work and countless businesses struggling or shuttered, tax revenues are falling. Revenues are projected to be 16% of GDP this fiscal year — down from 16.3% last year and 18% in 2015.
The Congressional Budget Office projects that both revenues and spending will decline in the upcoming fiscal year, which begins Oct. 1. Next year's deficit is expected to be 8.6% of GDP.
Despite the historically high debt levels, the government's borrowing costs are expected to remain low for the next several years. The Congressional Budget Office projects interest costs will decline through 2024 before turning upward in the latter half of the decade.
NOEL KING, HOST:
Congressional forecasters are predicting something breathtaking. The federal debt right now is almost as big as the entire U.S. economy. And by next year, they predict it'll be bigger, and it will soon surpass the debt load from World War II. So what does all of this mean? NPR's chief economics correspondent Scott Horsley has been looking through the data. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Noel.
KING: How did we get in this much debt?
HORSLEY: The government has been spending trillions of dollars to address both the health care and economic fallout from the pandemic. At the same time, households and businesses have been earning less money, so they're paying less in federal taxes. When the government pays out more and takes in less, the hole in its budget gets bigger. The nonpartisan Congressional Budget Office - they're the bean-counters here in Washington - they say red ink has more than tripled this year to $3.3 trillion. That's about one-sixth of GDP. And that makes this the biggest the deficit has been as a share of the economy since 1945.
KING: And then next year, the government's debt is expected to be bigger than the economy, which sounds astonishing. What does it mean exactly?
HORSLEY: If you think of the deficit as the amount you charge on your credit card in any given year, if you don't pay that off and instead you keep adding to it year after year, that accumulated balance is your debt. And next year, the federal government's debt is going to add up to more than all the goods and services we produce in the country in a year, our GDP. It's the first time that government debt has outstripped GDP in 75 years. So it is a milestone.
As eye-popping as that might be, though, Noel, even the people who are usually deficit scolds have acknowledged this is not the time for the government to suddenly get stingy. Rather, they say, you know, we're in a once-in-a-lifetime pandemic. and the government needs to put everything it can into solving that. Then once that's done, we can worry about the debt and deficit.
KING: That all sounds fair given how many people are out of work, how many people are going hungry, being evicted. I want to go back to the analogy of the credit card and ask you, how much room does the government have left on its credit card?
HORSLEY: There's still room. You know, even with these huge deficits, the government's borrowing costs are still pretty low. In fact, the CBO says interest payments are expected to keep falling for the next few years. Now, that won't last forever. In the latter half of the coming decade, the aging population and rising health care costs will put some pressure on the budget. But right now, there are plenty of people willing to lend money to the U.S. government for next to nothing in interest. It's also worth noting, Noel, that we were already running a big federal deficit before the pandemic hit. We were almost a trillion dollars in the red last year when times were good. So little wonder debts have been piling up during the deepest recession that most of us have ever lived through.
KING: Where has all of the money that the government has been spending during the pandemic - where has all of it been going?
HORSLEY: Some of it went for those $1,200 relief payments that most Americans got during the springtime. Some of it has gone to prop up struggling businesses with the forgivable loans and the PPP. Some went for ventilators and the warp speed vaccine development. And Noel, some of it has gone to pay unemployment benefits.
KING: NPR chief economics correspondent Scott Horsley. Thank you, Scott, for this.
HORSLEY: Good to be with you. Transcript provided by NPR, Copyright NPR.