The U.S. government's budget deficit surged to an all-time high of $1.7 trillion for the first six months of this budget year, nearly double the previous record, as another round of economic-support checks added billions of dollars to spending last month.
In its monthly budget report, the Treasury Department said Monday that the deficit for the first half of the budget year — from October through March — was up from a shortfall of $743.5 billion in the same period a year ago.
The deficit has been driven higher by trillions of dollars in support Congress has passed in successive economic rescue packages since the pandemic struck in early March 2020. The latest round came in a $1.9 trillion measure that President Joe Biden pushed through Congress last month.
Interestingly, the higher deficit is not due to a large loss of revenues. Those are now higher than where we were in March 2020, with February and March having a combined boost of $90 billion in revenues compared to last year.
Some of the increase in individual income tax revenues for March and for Fiscal Year 2021 in general seems to be related to the fact that many people have delayed in filing their taxes so far this year. If you look at the IRS’s filing statistics, more than 4 million fewer returns have been received, and 8.8 million fewer returns have been processed.
That has translated into a sizable reduction in refunds of nearly $33 billion, despite the fact that the average refund is slightly higher than it was at this time in 2020. This raises revenue by that same $33 billion. Interestingly, the Treasury says that corporate tax refunds were up through the end of March ($26.5 billion in 2021 vs $21.7 billion in 2020), as those businesses are banking the losses of last year as soon as possible.
On the spending side, March 2021 was the 12th month that the amounts were elevated in reaction to the outbreak of COVID and the related recession. And you can see which months when stimulus checks and PPP payments came out, including in March 2021.
And this also reflects in the jump in the deficit, which was already large between October 2019 and March 2020 (nearly 3/4 of a trillion dollars), but then jumped drastically between April and September of 2020 (aka the 2nd half of the 2020 Fiscal Year). As some of the jobs have come back in recent months, we've seen the deficit drop a bit, but it is still well higher than it was in the 1st half of FY 2020.
But is this large deficit a real economic problem? I'd say not at this time. We still are 8.4 million jobs below our February 2020 peak, and many millions more in need of aid. COVID is not licked yet, and these gaps in demand need to be made up.
It's also clear that there is more than enough demand to keep interest rates from spiking up (one of the big concerns that would occur with deficits and debts). The 10-year note is sitting just under 1.64%/ And the 3-month note will fetch you all of 0.02%. If high debt and/or inflation were believed to be real problems for now and the future, you sure wouldn’t see anyone buy debt at those absurdly low rates of return.
But if you're concerned about the debt rising with President Biden's infrastructure package, it looks like there's a good way to sell it to the public and lower the effects on the deficit at the same time.
Quinnipiac poll on Biden's infrastructure plan: Support: 44% Oppose: 38%
Same poll after respondents are told the plan would raise taxes on corporations: Support: 53% Oppose: 39%
So for the GOPs crying crocodile tears about the deficit, if they want to get it reduced, they can vote to hike taxes on the rich and corporate. Oh, they don't like that? Well, enjoy explaining that two-step to a public that is fine with bigger government ESPECIALLY if the rich and corporate will pay for it.
Lastly, as John Oliver lays out in this excellent segment, this country made the mistake of limiting the deficit in a depressed economy during the Obama years, and it kept our economy from returning to full capacity for several years. Republican donors and politicians may like that, as this slowed growth helps them get into power due to disillusion, but it doesn't do much for us in the real world.
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