What is the Biden administration’s fiscal policy? That is an open question that might be answered when the president lays out “building back better” plan in the coming weeks. The release of a new baseline forecast by the Congressional Budget Office (CBO) should persuade him that, contrary to the debt doves in both parties, the level of federal borrowing still matters. Moreover, ignoring the budget deficit is not necessary for his success.
CBO’s latest projection is a sobering reminder of the nation’s fiscal mess, and how much worse it got during the previous administration. The U.S. was borrowing too much even before President Trump arrived on the scene but he made the situation much worse by agreeing to massive spending increases while also cutting taxes. Then the pandemic hit.
With the economy in recession, Congress passed three separate response bills in 2020 that pushed the annual budget deficit to the highest level in the nation’s history — $3.1 trillion. That mark might be bested in 2021. Congress enacted a fourth bill in December, with an additional $0.9 trillion in new deficit spending. CBO expects it to push new borrowing this year up to $2.3 trillion. The $1.9 trillion COVID response plan advanced by the Biden administration will further add to the tab. Its enactment could push the 2021 deficit to at least $3 trillion and possibly much higher.
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