CBO Says Stimulus to Swell 2020 U.S. Budget Gap by $1.6 Trillion

(Bloomberg) -- The federal government’s massive stimulus to cushion Americans and businesses from the coronavirus is forecast to swell the U.S. federal budget deficit by $1.6 trillion during this fiscal year, the Congressional Budget Office said Thursday.

While the CBO didn’t give updated projections for the deficit in the 12 months through September, based on pre-virus projections for a $1 trillion deficit the new gap would likely be equivalent to more than 10% of gross domestic product. That would make it the biggest by that measure since World War II as well as a record in dollar terms.

In the decade through 2030, the Coronavirus Aid, Relief and Economic Security Act will boost the deficit by $1.8 trillion, the CBO said.

For this year, the act will result in more than $1 trillion of estimated outlays, while reducing government revenue by $571 billion, according to the agency.

Even though the law provides more than $2 trillion in aid, the CBO estimated no deficit impact from the $454 billion authorized to backstop Federal Reserve lending programs “because the income and costs stemming from that lending are expected to roughly offset each other.”

Deficits were already ballooning under President Donald Trump, who once said he could eliminate the entire national debt within eight years. The trend of rising gaps was driven by increased spending and lower revenue, stemming in part from Republican-backed tax cuts that took effect in 2018.

Even with a bigger supply of debt coming, investor appetite for U.S. Treasuries has remained robust, with the benchmark 10-year note yielding 0.61% on Thursday, compared with 2.6% a year ago. Massive purchases of Treasuries by the Federal Reserve have also kept yields low.

The gap may widen further. Policy makers are already debating additional aid, as the component of the bill providing about $350 billion in loans to small companies was depleted earlier Thursday, and payments to unemployed Americans may take longer to reach them.

©2020 Bloomberg L.P.