US Government Runs Biggest October Budget Deficit in History
If you thought maybe the federal government would try to rein in the spending after running a recorded budget deficit of $3.13 trillion in fiscal 2020, you were sorely disappointed. Uncle Sam has not kicked his spending habit.
October was the first month of FY 2021 and the federal government kicked off the year with a $284.1 billion budget deficit, according to the latest Monthly Treasury Statement. It was the largest October budget shortfall in American history.
The federal government spent $522 billion last month. That was up 37.3% over October 2019.
Meanwhile, government receipts were down 3.2% compared to last year.
There is a bit of a caveat. With Nov. 1 falling on the weekend, the Treasury pushed outlays for military active duty and retirement, veterans’ benefits, Supplemental Security Income, and Medicare payments back into October. That inflated the spending for the month. As a result, we might see a smaller deficit in November. Or not.
Regardless, the calendar shifts don’t account for all of the big increase in spending.
Here’s a little perspective. This October deficit was more than double October 2019’s budget shortfall. And last month’s deficit was nearly half the total deficit for the entirety of 2016.
Most people shrug off these massive deficits, reasoning that they are simply a product of the economic problems caused by the coronavirus. But the pandemic has papered over an ugly truth – the federal government was getting into near-record deficit territory before COVID-19 arrived on the scene.
In fiscal 2019, the Trump administration ran a $984 billion deficit. At the time, it was the fifth-largest deficit in history. The upward trajectory continued through the first two months of fiscal 2020, with the budget shortfall running 12% over 2019’s huge number. The 2020 deficit was on track to eclipse $1 trillion before the pandemic. Prior to 2020, the US government had only run deficits over $1 trillion four times, all during the Great Recession. We were approaching that number prior to the pandemic, despite what Trump kept calling “the greatest economy in the history of America.”
In October, the national debt surged over $27 trillion.
According to a CBO report, on the current trajectory, the size of the national debt will be nearly double the size of the US economy by 2050.
A lot of people claim massive deficits and ballooning debt don’t matter. After all, the US government has been borrowing money for decades and the doomsday predictions haven’t come to pass. But debt is neither free nor is it irrelevant. Borrowed money has to be paid back – either through taxation or inflation – which is nothing more than a hidden tax.
Debt also retards economic growth. Studies have shown that a debt to GDP ratio over 90 percent retards economic growth by about 30%.
You can try to paper over the surging deficits and ballooning debt by claiming it is “necessary” to fight the coronavirus. The excuse certainly creates good political cover for free-spending politicians in both political parties. But you can’t paper over the economic consequences of over-spending and debt. There is no such thing as a free lunch – even if you own a money printing press.