• U.S. budget deficit is recorded at $2.77 trillion, the second-largest annual deficit
• The data remains distorted by massive pandemic spending
• The shortfall expected to shrink further as COVID-19 relief aid fades
The U.S. has recorded the second-largest annual budget deficit as the pandemic-relief spending sustained the federal government’s massive borrowing needs.
The Treasury Department on Friday said the deficit for the fiscal year 2021 through September was recorded at $2.77 trillion, compared with the $3.13 trillion deficit recorded in the previous year.
In a statement, Treasury Secretary Janet Yellen and acting White House budget director Shalanda Young said the U.S. economic recovery this year helped to shrink the deficit from its 2020 nadir.
“The FY 2021 deficit was $897 billion less than the estimate of $3.7 trillion in the 2022 Budget published in May and $342 billion less than the estimate of $3.1 trillion in the Mid-Session Review, a supplemental update to the Budget published in August.”
As a percentage of GDP, the deficit narrowed to 12.4% in the fiscal year, from 15% in 2020, which was the biggest since World War II.
The deficit
In March, President Biden’s $1.9 trillion pandemic-relief bill provided a fresh round of financial assistance to households and businesses, along with state and local governments.
With that aid fading, the budget deficit is seen narrowing in the coming year. In July, the Congressional Budget Office reported that it expects a $1.15 trillion deficit for 2022. The CBO had estimated a $3 trillion gap for this year.
The lawmakers are considering two packages that could yet add to the deficit outlook.
The $550 billion bipartisan infrastructure bill is awaiting House adoption, has been passed by the Senate earlier this month. Also, Democrats are still negotiating a social-spending bill of around $2 trillion which will be spent over a decade.
“While the nation’s economic recovery is stronger than those of other wealthy nations, it is still fragile,” Yellen said. “In order to build upon the progress that has been made and to ensure the success of our businesses, productivity of our workers, and inclusiveness of our system, Congress should pass President Biden’s Build Back Better plan.”
Historically low borrowing costs have helped the Treasury avoid an even bigger borrowing need.
Revenue sources
The Treasury said that in 2021 the government collected a revenue of $4.0 trillion, $465.2 billion higher than the Budget estimate of $3.6 trillion, mainly due to higher income and corporate tax payments.
This year, the government recorded a $2 trillion revenue from individual income taxes, $371.8 billion from corporate income taxes, and $1.3 trillion from social insurance and retirement receipts.
The White House and congressional Democrats are now negotiating on a range of tax measures to help pay for a social spending package of about $2 trillion.
Former President Donald Trump’s 2017 tax cuts had contributed to a drop in revenue as a share of GDP before the pandemic. However, Democrats are trying to roll back the reductions in income and corporate rates from that package.
Picture Credit: Associated Press