CARES Act: More Is Needed

5/10/20

After the initial CARES Act legislation was enacted, the Congressional Budget office estimated that it would add $1.7 trillion to the Federal deficit over the 2020–2030 period. This estimate has likely escalated somewhat, as additional funds have been authorized. I can’t find an official revised figure, so let’s just assume a figure of $2.0 trillion for the sake of discussion.

[As an aside, regardless of the figure, I’m frustrated by seeing an estimate for impact on the deficit relating to a 10-year period. The much more meaningful measure would project the federal debt at the end of the current fiscal year (a) excluding the impact of the CARES Act versus (b) including the impact of the CARES Act. The difference between these two calculations would be the true measure of the cost of the program. A ten-year horizon for this metric makes no sense.]

Whether the “right” measure of the CARES act is north or south of $2.0 trillion, let’s use that figure to establish some perspective: $2.0 trillion represents about 53% of last year’s aggregate government spending, but it represents less than 14% of last year’s GDP.

As of April 24th, the Congressional Budget Office was forecasting that the GDP will fall at an annual rate of 40% just for the second quarter! Assuming no further declines in the second half of the year (unlikely), we’d still be looking at year over year GDP falling by about $10 trillion. In this light, the CARES Act allocations to date appear wholly insufficient.