The U.S. budget gap more than doubled in May, pushing the deficit for the fiscal year to near $2 trillion, as federal revenues plunged and government spending soared to help combat the coronavirus pandemic.
The federal deficit last month widened to $424 billion, more than twice what it was in May 2019, the Congressional Budget Office estimated Monday. For the first eight months of the fiscal year, which began in October, deficits totaled $1.9 trillion, compared with $739 billion in the same period a year earlier, CBO said.
For the past 12 months, the deficit as a share of gross domestic product stood at roughly 10%, the highest level since February 2010 when the U.S. was still climbing out of the last recession. CBO has estimated the deficit could hit $3.7 trillion for the fiscal year that ends in September, easily surpassing the mark hit during the last downturn.
Federal spending climbed 53% last month, to $598 billion, largely due to economic relief measures Congress has enacted amid widespread shutdowns of the economy. Outlays on unemployment benefits, stimulus checks and small-business lending all jumped, along with spending on grants for states and local governments and airlines.
Federal revenue fell 25%, to $175 billion, compared with May 2019. That is due to several factors. The drop in economic activity means that fewer people are working, so the government is collecting less in payroll and income taxes. In addition, Congress created some new tax breaks to help businesses and individuals weather the economic storm.
Some of the revenue decline is just a timing shift — a deliberate choice by the government to let taxpayers keep their money. Congress let employers defer some payroll taxes throughout 2020 and let businesses and individuals delay some tax payments until July. The government should collect much of that money eventually. Furthermore, because of the delayed tax-filing deadline, some refunds that would normally be paid in April were paid in May; that reduces the reported revenue totals.
Until the pandemic hit, federal revenue was rising, up 6% for the fiscal year that started Oct. 1. Through May, however, receipts are down 11%, including 23% drops in individual and corporate income taxes.