The US debt is projected to exceed the size of the entire country’s economy next year, the Congressional Budget Office said Wednesday.
It will be the first time the federal debt could be bigger than the US gross domestic product since 1946, just after World War II.
The CBO also projected that the federal budget deficit will hit $3.3 trillion this year, more than triple the shortfall recorded in 2019. That would be the largest deficit as a percentage of GDP since 1945.
The increase is mostly caused by the economic fallout of the coronavirus pandemic, which is shrinking GDP as Congress spends trillions of dollars to help keep the economy afloat. Lawmakers approved $3.7 trillion in spending earlier this year, sending out stimulus payments directly to American households, boosting unemployment benefits and expanding lending to small businesses.
It’s becoming clear that more federal aid is needed. More than 1 million people filed for new unemployment claims in each of the last two weeks and the unemployment rate remains above 10%, higher than at any point during the Great Recession.
Many of the aid programs created by Congress have lapsed. Lawmakers on both sides have proposed another spending package, but negotiations have been stalled since early August. Democrats put forth a $3 trillion plan and Republicans want to keep the top-line number closer to $1 trillion.
The projection released by the CBO on Wednesday assumes that current policies remain the same and no further legislation affecting revenues or spending is enacted.
The national debt was on the rise even before the pandemic. Trillions have been added to the debt over the past decade, largely driven by the policy response to the Great Recession – which many economists argue was needed to stimulate the economy.
But there are several other reasons why the debt is growing, including the Republican-backed tax cuts that passed in 2017, which led to a reduction in revenues. The aging American population, combined with rising health care costs, also contributes.