WASHINGTON — The U.S. budget deficit grew to a record $864 billion for June as the federal government pumped huge sums of money into the economy to prop up workers and businesses affected by the coronavirus, the Treasury Department said Monday, an amount that is expected to grow as a surge in cases portends prolonged economic pain.
The budget deficit, which had already reached almost $1 trillion in 2019, ballooned to nearly $3 trillion in the first nine months of the 2020 fiscal year and is expected to keep growing. The federal government, which has been shoveling cash out the door to fund unemployment benefits, small-business loans and direct financial support to families, is on pace to borrow more money, as a share of the economy, than it has at any time since World War II.
The increases are the direct result of the economy’s swift collapse amid the pandemic and Congress’ efforts to weave a safety net to save people and businesses from financial ruin. Lawmakers have spent nearly $3 trillion thus far, and they could be poised to spend more by month’s end to prevent a sudden wave of layoffs, foreclosures and other rippling economic pain as temporary emergency support approved by Congress expires while the economy is still reeling from the virus.
Real-time indicators suggest that an initial rebound from the trough of the recession, including job gains in May and June, has reversed in recent weeks, as the virus spread quickly across the South and Southwest.
While many lawmakers have expressed concerns about the deficit, Democrats and some Republicans on Capitol Hill have called for additional stimulus measures, which would potentially add trillions more to the gap between what the United States spends and takes in.
“We should not be taking our foot off the gas here,” said Sen. Michael Bennet, D-Colo., who has introduced legislation that would automatically continue to supply aid to people and businesses until economic conditions improve. “We have to bridge the American people across the threshold, to a point where people feel more certain about public health.”
Conservative economists have in the past warned that excess borrowing risked slowing economic growth by pushing up borrowing costs for businesses and sending consumer prices soaring.
But many of those economists, including Michael R. Strain of the American Enterprise Institute and R. Glenn Hubbard of Columbia University, have said additional spending is needed in the face of the coronavirus. Economists who had been pushing lawmakers to wind down spending on generous unemployment benefits now say recent economic data suggests that larger deficits will be needed moving ahead — including spending on another round of direct payments to individuals, which could help families bridge the gap as the virus hampers business activity.
“To the extent people can get on board with it,” said Karl Smith, vice president of federal policy at the conservative Tax Foundation in Washington, “another check would be good.”
President Donald Trump, who promised to balance the budget within two terms, has shown little appetite for cutting spending and has yet to promote the “fiscal conservative” message that has defined the Republican Party for years.
Instead, Trump invested heavily in revamping the military and, with the support of only Republican lawmakers, pushed for a $1.5 trillion tax cut, which came nowhere close to producing the revenue to pay for itself, as the administration had promised.
Treasury Secretary Steven Mnuchin has also downplayed deficit worries, arguing that borrowing costs remain low and that the government must spend whatever is necessary to endure the economic disruption caused by the pandemic. He has said the deficit is a long-term concern that should be addressed by spending cuts and policies that spur economic growth.
The June deficit was driven largely by government spending on the Paycheck Protection Program, which by the end of the month had approved more than $500 billion in loans to support small businesses. A Treasury official noted that the loans approved through the program had yet to be forgiven, but because of government accounting rules they were required to be listed as an expenditure.
Overall, government outlays topped $1.1 trillion last month, while receipts were down sharply as a result of tax payments that have been deferred until mid-July. And the deficit recorded in June was higher than the entire budget gap for 2018.
The swelling deficit, while expected on the heels of big spending packages, could further complicate talks for another rescue effort given Republicans’ recent concerns about the financial tab. Lawmakers are preparing to resume negotiations over another round of fiscal support, which could become even more imperative as the virus surges in many parts of the United States.
Yet some lawmakers have begun to publicly fret about the huge sums of money going out the door and have already rejected any attempt to extend more generous unemployment benefits, which are set to expire July 31.
“We can’t borrow enough money to solve the problem indefinitely,” Sen. Mitch McConnell of Kentucky, the majority leader, said in April.
The June deficit blew away the previous monthly record of $738 billion, which was set in April. The shortfall was nearly as large as the $984 billion that the U.S. accumulated for the entire year in 2019 and far larger than last June, when the budget deficit came in at a relatively paltry $8 billion.
For the fiscal year to date, the government is generating red ink at a record clip. So far in fiscal 2020, the deficit is $2.74 trillion, a 267% increase from the same period in 2019.
The figures underscore the deep fiscal hole facing the United States as it tries to counteract a pandemic that has thrown millions of people out of work and shuttered businesses across the country.
In addition to small-business loans, the U.S. has sent more than $267 billion in direct payments to households as of early June. Additional funds have gone to help airlines, local governments and other entities.
House Democrats passed an additional $3 trillion relief package in May that would send money to struggling state and local governments and direct more stimulus payments to taxpayers. That bill was a nonstarter with most Republicans, who recoiled at its high cost and never brought it up for a vote in the Senate.
Now, attention is turning to a plan that could win support from both parties, as well as the White House.
The next bill could cost $1 trillion to $3 trillion. Trump administration officials have been calling for a payroll tax cut, a capital-gains tax holiday, additional targeted relief to industries that have been hit hardest by the pandemic — such as travel and tourism — and another round of stimulus checks. Republicans have also been discussing liability protections for businesses, incentives for companies to rehire workers and additional aid for schools and medical care providers.
But in shying away from piling on more debt, some Republican lawmakers have pointed to monthly job reports indicating that the labor market could be recovering more quickly than some economists expected. The White House has said it wants to see the effects of the earlier stimulus legislation, which has not been fully deployed, before it adds to the tab.
Larry Kudlow, director of Trump’s National Economic Council, said Monday that despite some recent layoff announcements, he was optimistic that the economy would rebound sharply later this year.
“In terms of a V-shaped recovery, if you look at a variety of indicators, including high-frequency indicators, it looks like it’s a story that’s still in place,” Kudlow said on Fox News.
Speaker Nancy Pelosi said Monday that failing to make a robust investment in the economy would be more costly in the long run.
“If we don’t make the investments, including putting money in the pockets of the American people with unemployment insurance and direct payments, including honoring our heroes, our health care workers, our transit, teachers, sanitation workers, the — our public employees, if we don’t put that money there, we’re not going to be able — we’re going to pay a big price, worse hit on the economy,” Pelosi said on MSNBC.
The Congressional Budget Office projected last month that the pandemic would cost the economy about $16 trillion over 10 years, reflecting expectations of dampened consumer spending and business investment in the years ahead.
The Treasury data released Monday was in line with projections from the Congressional Budget Office and outlined increased spending on unemployment insurance and health care.
“These historically high deficits are driven largely by the necessary response to the pandemic, but once we have defeated this virus, we will need to address our damaged fiscal outlook,” said Michael A. Peterson, chief executive of the Peter G. Peterson Foundation, a nonpartisan organization that promotes fiscal restraint.