Monthly Budget Review: August 2021

The federal budget deficit was $2.7 trillion in the first 11 months of fiscal year 2021, the Congressional Budget Office estimates—$295 billion less than the deficit recorded during the same period last year. Although outlays rose by an estimated $245 billion (or 4 percent), revenues rose more—by an estimated $539 billion (or 18 percent).

Programs and policies implemented in response to the coronavirus pandemic—notably, refundable tax credits (particularly the recovery rebates), expanded unemployment compensation, and the Small Business Administration’s Paycheck Protection Program—substantially boosted spending, both this year and last year. Outlays in the first 11 months of fiscal year 2021 were about $2.1 trillion more than spending during the same period two years earlier, in 2019. Outlays in 2020 rose almost as much. As a result, the deficits recorded during the first 11 months of 2020 and 2021 were significantly larger than the $1.1 trillion shortfall recorded during the same period in fiscal year 2019.

In its most recent baseline projections, CBO estimated that if current laws governing taxes and spending remained unchanged, the 2021 budget deficit would reach $3.0 trillion, the second largest shortfall since 1945. That amount is nearly $130 billion less than the deficit recorded in 2020 but triple the shortfall recorded in 2019. Since CBO completed that estimate, income tax receipts have been greater than anticipated and outlays have been largely consistent with CBO’s projections. As a result, it seems likely that the 2021 deficit will be smaller than CBO projected in July.