A Closer Look at the Record $3.1 Trillion Deficit in FY 2020

The Treasury Department released its final Monthly Treasury Statement for Fiscal Year (FY) 2020, showing a record $3.1 trillion deficit for the year and debt held by the public at over $21 trillion. The record deficit comes as little surprise as the COVID-19 public health and economic crisis has caused revenue to fall and spending to rise significantly over the past seven months, though it is somewhat lower than the $3.3 trillion deficit the Congressional Budget Office (CBO) projected in early September. The FY 2020 numbers show the necessary deficit increase that policymakers undertook to respond to the current crisis.

Based on CBO's fiscal year Gross Domestic Product (GDP) projection, debt exceeded the size of the economy, totaling 102 percent of GDP.

The 2020 deficit of $3.1 trillion easily surpassed the previous record in dollars of $1.4 trillion in 2009 and more than tripled the previous year's deficit of $984 billion. This deficit is 15.2 percent of projected GDP, the fourth-highest in recorded history after three years during World War II. The deficit is $180 billion lower than CBO projected last month, with about two-thirds of that difference being due to higher revenue and the rest from lower spending.

Total spending is $6.6 trillion, substantially more than 2019's $4.4 trillion. Spending is 31.7 percent of GDP, also the fourth-highest total in recorded history after three years during World War II. Meanwhile, total revenue is $3.4 trillion, about $43 billion lower than 2019 revenue of nearly $3.5 trillion. Revenue is 16.6 percent of GDP, slightly higher than 2019's total due to the GDP drop. CBO expects it to fall next year under current law to 15.5 percent, though it's not clear if the higher-than-expected revenue this year would affect next year's projection.

Higher spending is especially concentrated among safety net and health care programs as well as newly-created programs in COVID legislation (see our COVID Money Tracker for more about the COVID response).

Fiscal Year Totals

Sources: Treasury Department, CRFB calculations

Numbers may not add up due to rounding.

Medicaid spending was up 12 percent over 2019 due to higher enrollment and an increase in matching funds to states while Medicare spending was up over 19 percent largely due to accelerated payments to providers that will eventually be paid back. Unemployment spending totaled $476 billion, up from just $32 billion last year due to unemployment benefit expansions and higher unemployment. The $1,200 rebates issued earlier this year cost $275 billion. In addition, Small Business Administration (SBA) spending (almost entirely representing the Paycheck Protection Program) and the Coronavirus Relief Fund for states totaled over $577 billion and $149 billion, respectively.

A few areas of spending are less affected by the crisis or are affected in ways that reduce spending. Social Security spending grew by 5 percent and military spending grew by nearly 6 percent due to built-in growth from non-COVID factors. Meanwhile, interest spending fell by over 8 percent due to interest rates falling during the crisis.

Other areas of spending increased by about $430 billion, or one-third, largely due to COVID relief programs. Over $110 billion of spending came from the health care Provider Relief Fund, $31 billion came from Treasury funding for Federal Reserve lending facilities, $28 billion came from the aviation workers relief program, $31 billion came from increased spending in FEMA's Disaster Relief Fund, and $22 billion came from increased Supplemental Nutrition Assistance Program (SNAP) spending.

Revenue is down for income and payroll taxes, both because of the crisis itself and the policy response. Individual income and payroll taxes combined are down by 1.4 percent, reflecting the drop in economic activity, the employer payroll tax deferral for 2020, and the employer payroll tax credits for paid sick leave and employee retention. Corporate income taxes are down by 8 percent, both due to a drop in profits and temporary tax cuts like expanding the net operating loss deduction. By contrast, other sources of revenue are actually up by 7 percent entirely due to higher Federal Reserve remittances from its balance sheet expansion. Other sources of revenue besides Fed remittances were down by nearly 5 percent.

The record FY 2020 deficit comes as no surprise and has been necessary to respond to the pandemic and economic crisis. However, it will contribute to high debt that will stay with us long after the crisis. Lawmakers will need a plan to bring deficits down after the crisis ends and the economy recovers.