U.S. Treasury Expects to Borrow $4.5 Trillion in Fiscal Year as Stimulus Spending Soars

ffort to combat coronavirus pandemic dwarfs borrowings during and after 2008 financial crisis

WASHINGTON—The U.S. government expects to borrow a record $4.5 trillion this fiscal year as it steps up spending to battle what is likely to be the deepest economic downturn since the Great Depression.

The borrowing is needed to cover a fast-growing budget deficit as businesses close and millions of Americans lose their jobs, squeezing government tax revenue, and as Congress authorizes trillions of dollars in emergency relief for workers, businesses and hospitals amid the coronavirus pandemic.

The anticipated new debt for the year ended Sept. 30 is more than triple last year’s $1.28 trillion. The government’s needs are likely to grow even larger as lawmakers on Capitol Hill take aim at the next round of fiscal relief, which could provide hundreds of billions more in federal spending, including money for cities and states to plug gaping holes in their own budgets.

“The scale of the borrowing Treasury is planning is enormous,” said Ernie Tedeschi, an analyst with Evercore ISI and a former Treasury economist. “But then again, so is the scale of the economic and public health catastrophe we’re trying to cure.”

States are lining up to borrow money authorized by Congress to cover claims for unemployment benefits, which increased by 30 million since mid-March. California was the first to borrow, receiving $348 million after getting approval to tap up to $10 billion through the end of July, a Treasury Department spokesman said Monday.

As a share of gross domestic product, the roughly $3.6 trillion of emergency spending Congress has authorized in the past six weeks is about what it spent over five years during and after the 2008-2009 recession, according to the Committee for a Responsible Federal Budget.

The Treasury’s decision to push back the deadline for individual and corporate tax payments is also putting a dent in revenue. The IRS said on March 17 that it was pushing back the tax-payment deadlines until mid-July in an effort to keep more money in taxpayers’ pockets amid virus-related disruptions.

By the middle of April, it was depositing billions of dollars in many Americans’ bank accounts in the form of tax refunds, just as spending on unemployment insurance jumped.

The nonpartisan Congressional Budget Office projects an annual deficit equal to 18% of GDP, the highest since the end of World War II and nearly four times what it was in 2019. That would push the national debt to 101% of GDP, also the highest since the end of World War II.

“The Treasury’s estimates imply that relief spending will be a little larger and a lot faster than we had originally anticipated,” said Wrightson ICAP chief economist Louis Crandall.

Additional stimulus spending is emerging as a friction point in Congress, with Democrats calling for more aid for states and cities, and some Republicans, including Senate Majority Leader Mitch McConnell (R., Ky.), expressing concern about widening deficits and the danger of wasteful spending.

Proponents of more spending cite the lessons of the last recession, when a burst of stimulus was quickly followed by efforts to rein in the budget deficit. They say that led to years of slow growth and warn that pulling back too soon now could imperil a recovery.

“When your farm is burning, you don’t worry if you have enough water to make it through the next three crop seasons. You put out the fire and then you worry about it later,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget.

Deficits generally shrink when the economy is expanding and increase during a slump, as rising unemployment reduces revenue and automatic spending on safety-net programs such as unemployment insurance jumps. Instead, deficits have risen in recent years despite robust economic growth, as Republican tax cuts enacted in 2017 constrained revenues and two bipartisan budget deals boosted federal spending.

Revenue is expected to shrink further as unemployed workers and shuttered businesses stop paying income taxes. The CBO projects the economy is likely to shrink 12% in the second quarter, and the jobless rate will average 14%, pushing the U.S. budget gap to $3.7 trillion by the end of the fiscal year.

The Treasury said it expects to issue $2.99 trillion in net marketable debt in the second quarter, more than five times as much as quarterly borrowing at the height of the 2008 financial crisis. It also estimated it would borrow $677 billion in the third quarter.

Investors remain unfazed by all the red ink. Global demand for U.S. Treasuries has continued to outstrip market concerns about deficits, keeping yields on the 10-year Treasury near record lows and suggesting the government still has plenty of room to borrow. The yield on the 10-year Treasury note was 0.629% late Monday, down from 2.485% a year ago.

The borrowing projections released Monday represent a stark contrast to estimates from early February, highlighting how fast the virus upended the U.S. fiscal outlook and how dramatically lawmakers have responded.

At the time, the Treasury estimated it would borrow $367 billion in the first quarter and pay off $56 billion in debt in the second quarter, when an influx of tax payments typically provides a seasonal revenue boost to the government.

The government ended up issuing $477 billion in marketable debt from January through March, and is set to borrow nearly $3 trillion in the second quarter, before scaling back borrowing in the third quarter.

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