The White House expects that, by early next year, there will be a drop in both the deficit and the debt-to-GDP ratio, which a federal agency recently projected to surge past 100 percent next year, an official said in a recent interview.
“It would exceed 100 percent in 2021 and increase to 107 percent in 2023, the highest in the nation’s history,” the CBO stated.
“In terms of the overall debt-to-GDP, that’s risen because deficits have risen. If the economy continues to recover—and again, a large portion of this deterioration in the deficit is the result of this pandemic contraction, so as we move away from that and return to normalcy and the economy by early next year recovers possibly—or I should say maybe likely—all of the pandemic related contraction, those deficits are not going to look anywhere near the size they are, and as that happens, your debt-to-GDP also won’t look as bad.” LaVorgna said.
The CBO’s forecast did not include another round of pandemic aid that Congress might enact and around which there has been heated debate between Democrats and Republicans.
While there is bipartisan support for more stimulus, Republicans and the White House have called for more limited aid, targeted to help businesses and families most impacted by the pandemic, while Democrats have pushed for a broader package.
Stimulus negotiations broke down early last month, with the key sticking points being whether to provide nearly $1 trillion in federal aid to state and local governments as well as how much in unemployment benefits should be provided.
Congressional leaders and White House officials are expected to meet for further negotiations later this month when members of Congress return to Washington after their break.
LaVorgna said low interest rates are keeping borrowing costs low, providing leeway for temporarily higher deficit spending to help pull the country out of the COVID-19 recession. He also said President Donald Trump was aware of the mounting debt burden and that his plans to drive economic growth will increase government revenues and drive down debt.
“The president knows he’s got to get the economy back the way it was,” LaVorgna said. “And he’s made tremendous progress in doing so, and if you get growth, you’re going to get revenue. Now isn’t the time to worry about the deficit. The deficit is a function of the fact that the economy was forced to close because of the pandemic.”
“So the point is getting the economy back to work, getting the jobs that are coming back to continue getting strong wage gains,” he added. “Those are all the things the president is focused on. If you’re looking at deficits, that’s really, right now, the totally wrong metric.”
LaVorgna said the time to tackle the deficit and debt problem is when the unemployment rate drops “to where it was considered to be a very low level,” which he believes will happen “much sooner than people think.”
