Congress and the Trump administration are rightly focused on the immediate task of limiting the harm from the COVID-19 pandemic and the economic contraction it has precipitated. The emergency measures put in place are not costless, however; the government is taking on trillions of dollars in additional federal debt, above and beyond the run-up that occurred in recent years when times were supposedly good. Whatever else is done to address the crisis should not substantially exacerbate the long-term fiscal problem. Further, when the crisis recedes, the entire federal budget needs recalibration to head off an intractable cycle of rising interest payments crowding out necessary public investments.
The Congressional Budget Office’s latest economic and budget forecast confirms that the pandemic, and Congress’ response, have reshaped fiscal projections. CBO expects the federal budget deficit to widen to $3.7 trillion in 2020 and to $2.1 trillion in 2021. Relative to the size of the economy, the 2020 deficit — 17.9 percnt of GDP — is the largest since 1945, when the country was completing its victory in World War II. Federal debt will grow to 108 percent of GDP — a level not reached even during the war or its immediate aftermath.
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