The Congressional Budget Office (CBO) issued An Update to the Budget Outlook: 2020 to 2030, containing its latest projections of the federal deficit, debt, spending and revenues for 2020 through 2030. Highlights from the report include the following:

Federal deficit and debt

• As shown in the table below, the federal budget deficit is projected to be $3.3 trillion in 2020, the largest since 1945. The surge in the deficit this year, which will comprise 16% of the gross domestic product (GDP) for 2020, is due to enactment of COVID-19 relief and the economic downturn.
• As a percent of GDP, the federal budget deficit is projected to be 8.6% in 2021, fall to 4.0% in 2027, and then rise to 5.3% by 2030.
• The deficit will average 5% over the 2021 through 2030 period and be at or above 4% annually.
• Federal debt held by the public is projected to rise sharply to 98% of GDP in 2020, as compared to 79% of GDP at the end of 2019 and 35% of GDP in 2007, before the Global Financial Crisis. It is projected to exceed 100% in 2020 and rise to 107% in 2023, the highest level in the nation's history, and grow to 109% by 2030.

Federal spending and revenue

• Federal government spending is projected to be 32% of GDP in 2020, 11 percentage points above 2019 and the highest percentage since 1945. Spending will fall to about 23% in 2030.
• Federal government revenue is projected to be 16.0% of GDP in 2020, falling from 16.3% of GDP in 2019, and rise to near 18% of GDP by 2030, close to its historic average over the past 50 years.
• Corporate income taxes are projected to decrease from $230 billion in 2019 to $151 billion in 2020, a decline of $79 billion (34%), due to a combination of the economic downturn and COVID-19 relief.

Annual federal budget deficit, 2019–2030

Source: Congressional Budget Office, An Update to the Budget Outlook: 2020 to 2030, September 2020.

Implications

The historic surge in the federal deficit due to COVID-19 relief and the ensuing economic crisis have added significantly to the deficit in the near-term and federal debt levels going forward. The rise in government debt relative to the size of the economy due to COVID-19 adds to the challenges already faced by the federal government due to the rise in entitlement spending — Social Security and Medicare — and the associated increase in the federal government's interest expense.

These trends suggest significant future policy risk with the potential for higher taxes and/or lower government spending as the Congress and Administration possibly seek ways to eventually pay for COVID-19-related relief and address the federal government's growing fiscal imbalance.

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