Stimulus spending sent both the FY 2020 deficit and the national debt to all time highs. Here are the numbers that show the breathtaking scope of the cost of the stimulus packages to date and the likely cost of the next round of stimulus.
The United States first went into debt in 1790. Alexander Hamilton was the Treasury Secretary at the time under President George Washington. He wanted the federal government to assume war debt held by the states, a proposal many opposed. In the Dinner Table Bargain of June 1790, Thomas Jefferson agreed to the assumption of debt in exchange for relocating the nation’s capital to its current location (after a 10-year hiatus in Philly).
Some might argue the deal was the equivalent of Jefferson exchanging his birthright for a bowl of stew. The assumed debt was about $25 million, more than our government will spend in the time it takes you to finish this article (and that’s if you’re a fast reader).
President Andrew Jackson managed to wrestle the debt back down to $0 in 1835, although a financial crises followed. From that date until last year, the total public debt accumulated through good years and bad stood at $22.8 trillion.
That’s a lot of zeros: $22,800,000,000,000.00
The Covid-19 pandemic has thrown gas on the fire. As Congress negotiates a stimulus deal, then doesn’t negotiate, then holds press conferences, then leaves town, then comes back, then tweets, then has a meltdown on CNN, it’s worth taking stock of just how much we’ve spent on Covid-19 relief.
We should also take stock of what the folks in Washington are proposing we spend in what would be the fifth stimulus package. After all, our great, great, great grandchildren will have to pay for this someday.
Before we look at the details, here are the big numbers that show the immense scope of stimulus spending:
- FY 2020 U.S. Government Spending: $6.5 trillion
- FY 2020 Deficit: $3.1 trillion
- Stimulus Spending: $2.6 trillion
- Stimulus Tax Relief: $900 billion
- Next Stimulus Proposal: $1.8 to $2.2 trillion
U.S. Government Spending and Debt in FY 2020
The U.S. government spent $6,551,872,000,000 in fiscal year 2020 that ended on September 30th. It was a record year, although not in a good way. Spending represented a jump of more than $2 trillion from the previous year, a 47% increase.
At the same time, government revenue was down. The difference wasn’t significant, amounting to a 1% decline, or about $42 billion. As spending skyrockets, however, every dollar of revenue becomes all the more important.
The increased government spending combined with declining revenue resulted in more than $3.1 trillion added to the national debt. On the bright side, the deficit was a lot lower than the $4 trillion some predicted earlier this year. Of course, this doesn’t all relate to stimulus spending, so let’s turn to that now.
Covid-19 Stimulus Spending
While the CARES Act is the most recognized Covid-19 relief package, there have been four to date, not including President Trump’s executive actions:
- Coronavirus Preparedness and Response Supplemental Appropriations Act (March 6, 2020)
- Families First Coronavirus Response Act (March 18, 2020)
- Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (March 27, 2020)
- Paycheck Protection Program and Health Care Enhancement Act (April 24, 2020)
About $3.5 trillion has been authorized by these and other measures, including tax relief provisions. The impact on the deficit in FY 2020 is lower than the amount authorized. That’s because not all of the funds authorized under the Covid-19 relief packages have been spent yet. That means, unfortunately, that some of the deficit spending gets pushed into this and future fiscal years.
Here’s a breakdown on spending by stimulus package and Mr. Trump’s executive actions.
How Covid-19 Relief Spending Compares
As noted above, including the tax relief provisions, the total value of the above legislation rises to about $3.5 trillion. It can be difficult to put such a large number into perspective. It’s helpful, if also a bit depressing, to compare the Covid-19 stimulus obligations to past relief packages and annual spending.
To date, Covid-19 relief obligations are more than twice the annual federal government discretionary spending in FY 2019 and exceed total FY 2019 revenue.
The Cost of the Next Stimulus Package
There have been several stimulus packages proposed for the next round of Covid-19 relief. As negotiations between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have narrowed the gap, let’s focus on their proposals.
Speaker Pelosi continues to stand behind what some have dubbed the Heroes Act 2.0. The current proposal weighs in at $2.2 trillion.
Senate Republicans have introduced several stimulus proposals. They range from the $1.1 trillion HEALS Act to a ‘skinny’ stimulus package that would cost roughly $300 billion. While the ‘skinny’ package has a value closer to $500 billion, some of the funds would come from unspent appropriations from early stimulus packages.
Nevertheless, Mnuchin has offered Pelosi a $1.8 trillion stimulus deal. If a deal is reached, therefore, it’s likely to cost somewhere between $1.8 and $2.2 trillion. In other words, it will roughly equal the size of the CARES Act, which itself was the largest relief package, by far, in the history of our country.
How much these deals would add to the federal debt is uncertain. What is clear, however, is that they will increase the national debt significantly. Back in April the Congressional Budget Office estimated that the FY 2021 deficit would be $2.1 trillion. That estimate assumed current laws didn’t change. In other words, it didn’t include additional spending on another round of stimulus now being negotiated.
As a result, a fifth stimulus package could result in a FY 2021 deficit that exceeds the FY 2020 shortfall.
Some Good News (kind of)
There is a silver lining to the massive debt our nation is accumulating—interest rates. The government is able to borrow money at near zero interest rates. Some have argued that the low interest rates should give the government the green light to borrow money with little regard to future consequences. They note that the rates on 30-year bonds hover at historic lows.
Low rates have saved the government billions of dollars in interest. But even 30-year bonds mature. Further, the government funds 60% of its deficits with 2 to 10-year notes. Just 14% of bond issues fall into the 10 to 30-year maturity range. The point is that the day will come when we have to pay the piper. And that day may be a lot closer than some believe.