The United States’ budget deficit for 2021 was $2.77 trillion, the second highest on record but decreased from the all-time high of $3.13 trillion in 2020. The deficits in both years reflect trillions of dollars in government spending to mitigate the devastating effects of global pandemic jobs.
The Biden administration jobs announced on Friday that the deficit for the fiscal year that ended Sept. 30 was $360 billion lower than in 2020, thanks to a recovering economy that increased revenues and helped offset government spending for pandemic relief efforts.
Before the deficit ballooning during two years of a global pandemic, the largest deficit was a $1.4 trillion shortfall in 2009. At the time, the United States was spending heavily to pull the country out of a deep recession caused by the 2008 financial crisis. The 2021 deficit represents 12.4 percent of GDP as a percentage of the overall economy, down from 15 percent of GDP in 2020.
The 2020 deficit was the largest in relation to the overall economy since World War II when it reached 29.6 percent of GDP in 1943 when the US heavily borrowed to fund the war effort. These figures remained elevated at 22.2 percent of GDP in 1944 and 21 percent of GDP in 1945 before beginning to fall after the war was won.
The joint report from the Treasury and the Office of Management and Budget stated that government spending would increase 4.1 percent to $6.82 trillion in 2021. This was offset by an 18.3 percent increase in government revenues to $4 trillion. The revenue increase reflected an improving economy as millions of people who had lost their jobs at the start of the pandemic returned to work and corporate profits recovered after a disastrous 2020.
“Under President Biden’s leadership, the U.S. economy is getting back on track and Americans are getting back to work,” Treasury Secretary Janet Yellen and Shalanda Young, acting director of the Office of Management and Budget, said in a joint statement.
According to the nonpartisan Congressional Budget Office, the deficit will fall to $1.15 trillion in the current fiscal year, which began Oct. 1. It will fall below $1 trillion for three years from 2023 to 2025 before rising above $1 trillion each year through 2031.
That CBO forecast does not include the spending that will occur if Biden is able to get two pending measures through Congress: a $1 trillion proposal for traditional infrastructure projects such as roads and bridges, and his plan to bolster social safety net and combat climate change.
The safety-net measure had a $3.5 trillion price tag. Still, it is expected to be reduced to around $2 trillion or less to appease moderate Democrats like West Virginia Senator Joe Manchin.
In their comments, Yellen and Young credited Biden’s economic policies for contributing to a lower deficit, including Biden’s “swift action to mount a historic vaccination effort” and his success in getting Congress to approve $1.9 trillion in extra spending in the stimulus bill passed in March.
“While the nation’s economic recovery is stronger than those of other wealthy nations, it is still fragile,” Yellen said. “In order to build upon the progress that has been made … Congress should pass President Biden’s Build Back Better plan.”
Yellen and other administration officials have argued that running large deficits now is an acceptable way to boost economic growth and address long-term middle-class issues such as child care. Yellen has stated that efforts to address these issues will boost long-term productivity and be cost-effective at a time when the government’s borrowing costs are so low.
Interest on debt totaled $562 billion in 2021, up to $40 billion from the previous year. However, much of that increase is due to higher inflation, which forced the government to pay higher returns to holders of Treasury securities. Payments on overall debt have remained relatively stable because interest rates have remained low, despite rising debt levels. The total public debt is now close to 100 percent of the total GDP.
Source: AP News