The coronavirus crisis is likely to push the annual deficit to $3 trillion or more in 2020, which would represent the biggest since World War II after adjusting for the size of the economy.
Before the coronavirus ripped through the globe, the federal government was already expected to run a deficit of $1 trillion, according to the Congressional Budget Office. Yet that estimate was based on assumptions that the unemployment rate would remain at a 50-year low of 3.5%, that real GDP would grow at 2.2%, and that the economy would add an average of 169,000 jobs per month.
Throw all of that out the window. The global shutdown triggered by the response to the coronavirus has already led to mass layoffs and is expected to plunge the economy into a recession, if not a depression. Even before the passage of any new spending, the weakening of the economy will lead to lower tax revenue and more dependence on existing social safety net programs.
On top of this, lawmakers are trying to negotiate a massive spending package to cushion the blow to the economy, which could cost around $2 trillion.
That means that $3 trillion is looking like a very realistic projection of where the deficit could end up now, and it could get even higher depending on how the next few months go.
On a dollar basis, that would represent the highest deficit in U.S. history. Adjusting for the size of the economy, it would end up being around 15% of GDP, which would be the biggest deficit since World War II — exceeding even the lowest point of the Great Recession. In 2009, the deficit was just under 10% of GDP.
