U.S. Federal Government Records $3.1 Trillion Deficit

COVID-19 hurt the financial performance of the U.S. federal government in fiscal year 2020, by causing a modest drop in revenue and a big increase in spending.

The federal government posted a deficit, or loss, of $3.1 trillion for 2020 on $3.4 trillion in revenue, compared with a loss of $1 trillion for 2019 on $3.5 trillion in revenue.

Big pandemic response programs contributed to total spending increasing to close to $6.6 trillion in 2020, from $4.5 trillion the year before.

Originally, before COVID-19 came along, officials in the administration of former President Donald Trump had hoped to hold fiscal year 2020 federal government spending to $4.8 trillion.

Overall U.S. gross domestic product, or national income, fell 2.3%, to $21 trillion.

The Budget Documents

Officials at the federal Office of Management and Budget, an arm of the White House, posted the fiscal year 2020 results in connection with the release of President Joe Biden’s budget proposal for fiscal year 2022.

The federal government’s 2020 fiscal year 2020 ended Sept. 30, 2020, and the government’s 2021 fiscal year started Oct. 1, 2020.

Federal fiscal year 2022 starts Oct. 1.

A detailed collection of federal financial performance tables starts on page 36 of the main budget proposal document.

Revenue

When viewed as if it were a company, the U.S. federal government looks like a large social insurance provider that happens to have a large, legacy military operation and a portfolio of activities in other areas, such as transportation, land ownership, education and broadcasting.

Here’s what happened to some key types of federal government revenue between 2019 and 2020:

• Individual income taxes: $1.6 trillion (down from $1.7 trillion)
• Social Security payroll taxes: $965 billion (up from $914 billion)
• Medicare payroll taxes: $292 billion (up from $278 billion)
• Federal Reserve System Earnings: $82 billion (up from $53 billion)
• Customs duties: $69 billion (down from $71 billion)
• Estate and Gift Taxes: $18 billion (up from $17 billion)

Spending

Here’s what happened to some key types of federal government spending:

• Social Security: $1.1 trillion (up from $1 trillion)
• Non-Defense Discretionary Programs: $913 billion (up from $661 billion)
• Defense: $714 billion (up from $676 billion)
• Medicare: $769 billion (up from $644 billion)
• Medicaid: $458 billion (up from $409 billion)

The Big Picture

Economists disagree with each other about what deficits run up by large country mean. In theory, in the long run, increased federal borrowing could reduce the ability of individuals, companies, and state and local governments to borrow money.

Big deficits could also lead to inflation, by reducing how individuals and businesses see the value of the dollar.

For life insurers and health insurers, big federal budget deficits could be a warning sign.

Big deficits could lead to:

• Inflation and economic instability.
• Efforts by the federal government to hold down its own interest costs, in ways that could lead to disruption.
• Increased pressure on federal policymakers to find ways to tax the value of life insurance, annuities, health insurance and other insurance products, or to reduce the value of some of the tax rules that now support sales of insurance policies and annuities.

(Image: CDC)