U.S. Budget Deficit Widened 61% in Quarter on Covid-19 Spending

(Bloomberg) -- The U.S. federal budget deficit continued to balloon at the end of last year on spending to cushion the pandemic’s economic fallout, with the incoming Biden administration preparing to deploy more government funds.

The gap was $572.9 billion in the October-December period, a record for the fiscal year’s first quarter and up 61% from a year earlier, according to a Treasury Department report Wednesday. December’s $143.6 billion deficit, also a record for that month, compared with $13.3 billion during the same month in 2019.

The figures underscore the extent of the government’s unprecedented financial support of the U.S. economy during the coronavirus pandemic. Spending is set to rise further on the $900 billion Covid-19 aid package approved last month, and President-elect Joe Biden plans to propose trillions of dollars in additional outlays.

While policy makers and economists agree that last year’s stimulus was key to the recovery from the pandemic so far, the widening shortfall is likely to fuel talk among deficit hawks about future inflation risk and potential burdens for future generations. At the same time, economists and politicians are increasingly embracing the idea that the U.S. can carry much more debt than previously believed without negative effects such as too-high inflation.

Federal Reserve Chair Jerome Powell has repeatedly downplayed near-term concerns about the deficit during the pandemic in urging Congress to enact fiscal stimulus. He said last month that while U.S. debt may appear to be historically high on the surface, it’s “actually not that high” based on measures such as real interest costs divided by gross domestic product.

With the economy weakened, revenue in the quarter decreased 0.4% while spending rose 18.3% from a year ago, driven by unemployment benefits deployed to help millions of jobless Americans. Outlays on Medicare and Medicaid also increased.

December’s figures reflect virtually none of the $900 billion Covid-19 stimulus package passed late in the month, Treasury officials said during a press briefing call Wednesday.

Last month’s pandemic relief package means the budget deficit is set to exceed $2.3 trillion in fiscal 2021, the second-highest since World War II after the 2020 gap of $3.13 trillion, according to the Committee for a Responsible Federal Budget.

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