Every month, the nonpartisan Congressional Budget Office looks back at revenue and expenditures for the prior month, analyzes the trends, and provides lawmakers with a snapshot of the budget’s performance to-date for the current fiscal year, relative to expectations. The federal fiscal year runs from October 1 to September 30, and CBO’s Monthly Budget Review for April was the first to reveal signs of the economic devastation imposed by the COVID-19 pandemic and the federal government’s fiscal response.
April Deficit Totals $737 Billion, Largest on Record
The federal deficit ballooned in April to $737 billion, compared to a $160 billion surplus just one year ago. A precipitous decline in revenues combined with a significant increase in outlays pushed the monthly shortfall to a staggering level.
April is typically a good month for the federal government’s checking account. The Treasury department receives the largest portion of annual revenues at this time since multiple IRS tax filing deadlines fall on April 15 each year. This year, however, revenue collections were down 55 percent compared to a year ago ($239 billion versus $536 billion in April 2019). This was largely attributable to three factors: (1) the Trump administration’s decision to postpone the IRS tax filing deadline to July 15; (2) wage losses by the newly unemployed; and (3) multiple temporary tax relief provisions that Congress included in coronavirus rescue packages.
Total spending more than doubled to $976 billion in April, compared to $375 billion one year ago (a 160 percent increase). This jump reflects significant federal spending to fight the virus and provide financial support to affected businesses and households. Examples include refundable tax credits for employers who retain their employees, accelerated Medicare reimbursements for hospitals and providers, grants for state and local governments for expenses relating to the pandemic, increased unemployment insurance benefits, and Small Business Administration loans and grants.
Year-to-Date Red Ink Reaches Nearly $1.5 Trillion
Overall, CBO estimates that the federal budget deficit is nearly $1.5 trillion for the first seven months of Fiscal 2020, approximately $950 billion more than at this point last year.
Many of the legislative provisions enacted so far will ramp-up over the coming months. If no further actions are taken, CBO expects the total budget deficit in Fiscal 2020 to reach $3.7 trillion or roughly 18 percent of Gross Domestic Product. That would be the highest deficit as a percentage of GDP since 1945 (21 percent). By comparison, deficits have averaged 3 percent of GDP over the past 50 years.
While the Fiscal 2020 numbers are sobering, they should be viewed in context. The COVID-19 pandemic has infected more than 1.3 million Americans since the beginning of the year and resulted in more than 80,000 deaths. Mitigation efforts, including business closures and stay-at-home orders, led to a 2020 first quarter GDP decline of nearly five percent. Over 33 million workers have filed for initial (first-time) unemployment insurance benefits in the last 7 weeks and the unemployment rate reached 14.7 percent in April.
The deficit numbers will remain very high until the economy begins to recover and recovery will largely depend on how successful we are in controlling the spread of the virus.