The U.S. deficit is expected to be $3.7 trillion in 2020, according to the Congressional Budget Office, driving the federal debt to exceed the size of the economy for the first time since World War II.
The deteriorating outlook is a result of the economic havoc being wreaked by the coronavirus and the federal response. Spending has been driven up by $2.7 trillion due to economic relief legislation, and the dramatic drop in business activity is expected to gut revenue collections.
Going into the crisis, the United States was already on shaky ground fiscally, with the CBO projecting annual $1 trillion deficits as far as the eye could see given the long-term crisis facing entitlements as the ranks of retirees grow and healthcare costs rise.
But that was during a time when the economy was booming and unemployment was at a 50-year low. Now, the CBO expects GDP to drop 12% in the second quarter, the equivalent of 40% on an annualized basis. Unemployment is expected to average 14% over the course of the quarter.
Now, CBO expects the public debt to hit 101% of GDP by the end of the year. The only time in American history that debt has been higher was in the years 1945 and 1946, when it hit 104% and 106%, respectively, as a result of wartime spending.
The actual number for 2020 is likely to be worse, however, because the CBO does not account for future spending bills that Congress is likely to pass in response to the crisis. In addition, CBO assumes a 75% drop in social distancing during the second half of the year, which could be optimistic.
