U.S. Congress has approved more than $2 trillion to be committed to COVID-19 relief and the resulting financial fallout from the pandemic. Billions of dollars were used to bail out industries, rescue small businesses, and boost unemployment assistance. This amount is larger than the economies, or gross domestic products, of all but six other nations. Only China, Japan, Germany, United Kingdom, France, and India have larger GDPs. Before the pandemic, the federal government was set to add another $1.1 trillion by September. Now, the COVID-19 stimulus has pushed the expected budget deficit to $3.5 trillion. The federal government has routinely spent more than it collects, adding to the national debt each year, but this addition to the debt will stand out. It begs the question, who will pay for the debt?
The short answer to who will pay the debt is the working American. The middle-class Americans, the autoworkers, nurses, and small-town deli-workers will be the ones paying off most of the debt. It is likely that within the next few years, the U.S. will impose monumental tax increases. The U.S. may even start to look at sources of tax revenue that once seemed unthinkable. For example, consumption taxes, like value-added taxes or carbon taxes, liked by many economists, may get a hard look. So could a wealth tax, or at least a one-time levy on existing wealth. A wealth tax was considered an unconventional idea of the far political left; now, it may attract attention from mainstream policymakers. No type of broad-based tax hikes should be enacted until the economy returns to some normalcy, which probably won’t happen until 2021.
While the Treasury can borrow as much money as it needs to cover each year’s deficit, inventors will have to trust in the full faith and credit of the U.S. government. The Treasury raises money by selling Treasury bills, Treasury notes, and Treasury bonds. In 2019, more than a quarter of Treasury notes were held by the federal government in programs like Social Security. The public organized the rest in state pension funds, foreign investors, and the Federal Reserve. The COVID stimulus has caused the Federal Reserve one of the biggest purchasers by “printing” more than $1 trillion to purchase treasuries. While the extra money has helped pay for the stimulus and aid the U.S. economy and financial system, it’s the average day workers that will deal with the blowback.
The COVID-19 pandemic caused millions of Americans to lose their jobs and shocked the U.S. Economy. As a result, Congress approved more than $2 trillion to aid unemployed Americans and stimulate the economy. This massive increase in debt has raised a GDP that is larger than six other countries. While America has annually spent more than it takes in, the deficit added by COVID stimulus will stand out. Unfortunately, it will be your middle-class Americans that will end up paying for most of the debt.