Politics

White House Predicts Deficit and Debt-to-GDP Will Shrink Early Next Year as Economy Recovers

The White House expects that, by early next year, there will be a drop in both the deficit and the debt-to-GDP ratio, which a federal agency recently projected to surge past 100 percent next year, an official said in a recent interview.

So far this year, around $3.3 trillion in emergency aid to fight the economic fallout from the CCP (Chinese Communist Party) virus has been enacted into law, causing a surge in this years already large deficit and federal debt. If the full amount budgeted is realized, this will bring the budget deficit to 16 percent of GDP, the highest level since World War II and more than triple the shortfall in 2019.

The debt-fueled spending to fight the impact of the pandemic has caused overall federal debt held by the public to rise. The non-partisan Congressional Budget Office (CBO), which produces economic and budgetary analyses to support the Congressional budget process, said in a report last week that it projects federal debt will rise sharply to 98 percent of GDP in 2020, compared with 79 percent at the end of 2019 and 35 percent in 2007, before the start of the previous recession.

“It would exceed 100 percent in 2021 and increase to 107 percent in 2023, the highest in the nations history,” the CBO stated.

Joe LaVorgna, chief economist of the National Economic Council, told Just The News last week that the ratio of federal debt to the countrys GDP will fall as the economy recovers.

“In terms of the overall debt-to-GDP, thats risen because deficits have risen. If the economy continues to recover—and again, a large portion of this deterioration in the deficit is the result of this pandemic contraction, so as we move away from that and return to normalcy and the economy by early next year recovers possibly—or I should say maybe likely—all of the pandemic related contraction, those deficits are not going to look anywhere near the size they are, and as that happens, your debt-to-GDP also wont look as bad.” LaVorgna said.

The CBOs forecast did not include another round of pandemic aid that Congress might enact and around which there has been heated debate between Democrats and Republicans.

While there is bipartisan support for more stimulus, Republicans and the White House have called for more limited aid, targeted to help businesses and families most impacted by the pandemic, while Democrats have pushed for a broader package.

Stimulus negotiations broke down early last month, with the key sticking points being whether to provide nearly $1 trillion in federal aid to state and local governments as well as how much in unemployment benefits should be provided.

Congressional leaders and White House officials are expected to meet for further negotiations later this month when members of Congress return to Washington after their break.

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The U.S. Capitol is reflected in a standby ambulance in Washington on March 27, 2020. (Alex Edelman/AFP via Getty Images)

LaVorgna said low interest rates are keeping borrowing costs low, providing leeway for temporarily higher deficit spending to help pull the country out of the COVID-19 recession. He also said President Donald Trump was aware of the mounting debt burden and that his plans to drive economic growth will increase government revenues and drive down debt.

“The president knows hes got to get the economy back the way it was,” LaVorgna said. “And hes made tremendous progress in doing so, and if you get growth, youre going to get revenue. Now isnt the time to worry about the deficit. The deficit is a function of the fact that the economy was forced to close because of the pandemic.”Read More From Source

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