The nonpartisan committee projected that under the emergency legislation already passed and economic fallout from the pandemic, the annual budget deficit would quadruple and reach more than $3.8 trillion this year, while the accumulated federal debt — projected to be about $24 trillion — would exceed the size of the entire United States economy by Oct. 1. Interest on the debt could reach the level of federal spending outside of defense.
These “never-before-seen levels” of deficit and debt would put the country on a debt trajectory it has not experienced since World War II, the group said. And that is if things go well and the economy bounces back quickly — a fairly uncertain prospect. No matter which way things go, the report warned, “At some point such high and rising deficits and debt levels will prove unsustainable, and corrective action will be needed.”
In other words, the bill will come due, as it always does.
“Long-term, this is going to have enormous implications,” said Kent Conrad, the former Democratic senator from North Dakota and chairman of the Senate Budget Committee. “It is going to make budgeting in the future extraordinarily difficult.”
And it is quickly becoming apparent that the future, in some cases, is not far off. Governors who don’t have the luxury of deficit spending have already announced budget cuts, eliminating services and readjusting their priorities to account for shortfalls caused by the pandemic response. At the same time, lawmakers on Capitol Hill have pressed for more federal aid to flow to state and local governments, adding to the deficit spending by Washington.
The pandemic response will amplify the push and pull that has long shaped the fiscal wars, between those who argue that the answer to deficits is to reduce spending and those insisting that the solution is new revenue streams. Complicating the situation, each side will suspect the other is using the crisis to advance their own policy agendas, as either an excuse to raise taxes or a justification to squeeze spending on programs they already didn’t like.
To Mr. Hoagland, the answer is clear, particularly since demand for economic aid for both individuals and businesses is not likely to dissipate any time soon, with some calling for elements of the rescue package to be made permanent. He is already throwing around the “R” word.
“We are just going to have to belly up to the bar and admit there is going to have to be more revenue,” said Mr. Hoagland, who raised the possibility of a carbon tax as one avenue to generate new federal income. “We have to start paying for this in the current world, and not just throwing it off onto the future generations.”