The Coming Tax Bill Will Be Large and Ideological
Discussions about how to pay for all this fiscal spending are likely to become unmoored from economic reality.
How will the U.S. pay for fiscal spending?
Photographer: Frederic J. Brown/AFP via Getty Images
The U.S. government is spending trillions of dollars to support the economy as it works to contain the fallout from the coronavirus pandemic. There hasn’t been much discussion about how all this spending will be paid for, but those talks are coming and they will not be pleasant. To be clear, this level of spending cannot be financed by tax revenue alone, but lawmakers will surely try, even if just for the sake of appearances.
Even before the Covid-19 crisis, the federal budget deficit was about $1 trillion, or 5% of gross domestic product. That’s not an extreme level historically; the shortfall reached 10% of GDP during the financial crisis in 2008-2009. What’s different now is that the spending will be much bigger, with $2.2 trillion approved already, including sending checks to individual taxpayers along with bailouts for companies that probably don’t deserve them. I don’t think anyone seriously believes the first $2.2 trillion of stimulus is going to be the last, especially if we are unsuccessful at stopping the spread of infections.