“The annual budget deficit—the gap between government spending and tax revenues—would run about $900 billion in 2019, and it would push beyond $1 trillion every year starting in 2022. Debt as a percentage of the country’s total economy would rise steadily, reaching 93 percent of GDP by 2029, the highest level since the years directly following World War II.
Automatic spending on major entitlements would keep government spending high and make reductions difficult. Interest payments on the nation’s rising debt would become one of the country’s largest spending categories. The persistently high levels of debt and deficits, meanwhile, would serve as a drag on economic growth. Overall debt levels were on track to reach the highest levels in the nation’s history.
All of this was reason to worry. “Such high and rising debt would have significant negative consequences, both for the economy and for the federal budget,” the report warned, with reduced national productivity and total wages plus an increased likelihood of a fiscal crisis. In an emergency scenario, policymakers might be more constrained from responding in the most effective way. Debt and deficits were a modest burden on the economy in good times. And the higher they ran, the more economic risk accumulated.
Again, this was the outlook in 2019, when the unemployment rate was below five percent, when the deficit was projected to run about $900 billion over a 12-month span, when daily viral death tolls and case-count heat maps weren’t posted on major news sites like especially grisly weather reports.
In June of this year, the federal deficit was $864 billion.”
“the United States is in uncharted waters in terms of both public finances and their effect on the economy. And no one really knows where we’ll go from here.”
“Senate Majority Leader Mitch McConnell’s suggestion that maybe states and cities should just go bankrupt amid the coronavirus-induced economic crisis they’re facing has not been particularly well-received. A big part of the issue: As the law stands right now, states can’t declare bankruptcy.
But the controversy points to a broader problem states across the country are facing — their costs have skyrocketed and their revenue has plummeted, and unlike the federal government, they can’t run a deficit. They’ve got to balance their budgets so that they take in what they put out. And right now, a lot of states are sounding the alarm that they’re going to need to make deep spending cuts unless the federal government steps in.
New Hampshire Gov. Chris Sununu, for example, warned his state could need to make $500 million in cuts next year. Missouri Gov. Mike Parson estimated he’ll have to cut $700 million and has already put a pause in $227 million in state funding. Los Angeles Mayor Eric Garcetti has said he plans to furlough thousands of city workers.
The problem — at least with most states and cities — isn’t that they’ve managed their finances particularly poorly. It’s that they’re in the midst of an unprecedented crisis.
“States have balanced budget rules to keep them from doing things that are fiscally imprudent. In practice, when we’ve hit recessions that’s led to difficulty,” explained Kim Rueben, director of the state and local finance initiative at the left-leaning Urban Institute. States are able to raise more tax money when the economy is doing well, not when it’s doing poorly, even though that’s often the time when it needs money for things like unemployment and health care most. Many states have rainy day funds to cover downturns — the 50-state total recently hit $75 billion.
“Not all of the states were good, but on average, they had actually put money away to try and handle what is your normal economic cycle,” Rueben said. “What we are entering into right now is not normal in any way, shape, or form.””
“the first state to put in place a balanced budget amendment in its constitution was Rhode Island in 1842, and other states followed. As of 2015, 46 states plus Washington, DC, have some sort of balanced budget requirement, which basically means they can only spend as much revenue as they’re bringing in. How stringent these requirements are varies by state; some experts say the only state that doesn’t have to balance its budget is Vermont”
“The United States has a system where many of the country’s priorities are handled at the state and local level — the local school systems, colleges and universities, infrastructure, prisons and jails, the health care systems. The federal government is supposed to work in partnership with states and cities by design, the idea being that they’re closer to the ground on understanding the needs and wants of their citizens.
“You want the financing of them to be solid,” Leachman said. “It’s in the national interest to make sure that that happens, and it’s another reason why it should be a no-brainer for the federal government to provide the fiscal relief that states and localities need right now.””
“Republicans have often criticized Democrats for their expensive policies and rallied behind spending cuts, but now that Trump is in the White House, many conservatives seem to have abandoned the idea entirely. Rush Limbaugh, the inflammatory right-wing radio host and recent recipient of the Presidential Medal of Freedom, regularly railed against former President Barack Obama for his reckless approach to fiscal issues. In July, he appeared to have changed his position.
“How many years have people tried to scare everybody about [the deficit]?” he said on his show. “Yet here we’re still here, and the great jaws of the deficit have not bitten off our heads and chewed them up and spit them out.””
“This fiscal year, 2020, the federal government will collect $3.6 trillion in tax revenues. But due to its spending addiction, the government will expend $4.6 trillion. This means that the government will have to borrow $1 trillion this year alone, in order to cover a deficit of 4.6 percent of GDP. This is the first trillion-dollar deficit not due to a global recession.”
“Thankfully, the economy is doing well for now. This good performance is masking many of the ill effects, not just of the trade war but also of our overall fiscal situation. The reality, however, is that a growing economy during a time of peace should not be accompanied by growing deficits.”