Former Vice President Joe Biden has won the presidency and a clear mandate to govern following the highest-turnout election since before universal suffrage. But voters were less kind to his allies in the Democratic Party, apparently reducing their majority in the U.S. House of Representatives to single digits and electing a U.S. Senate that will be evenly divided or narrowly under Republican control (pending two run-off elections in Georgia). As a result, Congressional Republicans – who spent the last four years indulging the Trump administration with trillions of dollars in unfunded tax cuts and spending increases – will surely use the unprecedented budget deficits President-elect Biden inherits as pretext to stymie his ambitious economic agenda. Biden will need to leverage his unique ability to work across the aisle and demonstrate that his objectives can be accomplished in a fiscally responsible way in order to overcome this conservative opposition.
Thanks to the pandemic recession caused by the coronavirus, almost one out of every two dollars spent by the federal government in Fiscal Year 2020 was financed with borrowed money instead of tax revenue. This $3.3 trillion deficit was equivalent to 16 percent of gross domestic product – the largest deficit since World War 2. Although the deficit for FY2021 is projected to be smaller, it is still projected to be roughly $2 trillion. As a result of the borrowing needed to finance these deficits, the national debt is on track to exceed the all-time high it reached at the end of WW2 (106 percent of GDP) before the end of Biden’s first term.
Senate Republicans have already begun using our nation’s alarming fiscal position as a pretext to undermine further fiscal stimulus and other measures to support the American people through the coronavirus pandemic. While Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi were negotiating a $1.8 trillion relief bill to extend provisions of the CARES Act that expired in August, Senate GOP leaders said that the price tag is a non-starter with their caucus. Now that Republicans have probably preserved their Senate majority, it is unlikely that President Trump or President-elect Biden can get a stimulus bill much more than $1 trillion.
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