Economic Disaster: Deficit Skyrockets As Unemployment Freezes

by | Jul 18, 2020

Economic Disaster: Deficit Skyrockets As Unemployment Freezes

by | Jul 18, 2020

Man Reading Newspaper While Sitting Near Table With 935979

New tax revenue data released by the Treasury Department on Monday shows that tax revenue further worsened in June (compared year over year) from May’s already cratering total.

On the plus side, neither May nor June has returned to April’s historic plunge in revenue.

As shown in June’s Monthly Treasury Statement, June’s total tax receipts were $240.8 billion. That was down 27.8 percent year over year, a decline from May’s year-over-year drop of 25 percent. This was nonetheless less of a plunge than April’s multidecade low in revenue growth, which hit –54.8 percent.

Mcmaken1

In spite of declining revenue, federal spending continues at a record-breaking pace. Federal outlays surged in June to $1.1 trillion, a remarkable sum for a single month of spending. In recent years, federal spending for an entire year has been between $4 trillion and $4.5 trillion.

With declining tax revenues and soaring spending, the deficit reached new highs in June as well. June’s budget deficit hit $864 billion, a new high. It is now likely that the annual budget deficit will easily top $3 trillion, which will be well above any previous deficits.

The annual deficit reached “only” $1.4 trillion in the wake of the 2008 financial crisis. This moderated over the next eight years, but after years of runaway spending during the Trump administration, the annual deficit again reached $1 trillion in 2019. This was a remarkable feat for a nonrecessionary period, and I warned at the time that this did not bode well for any coming period of economic turbulence. That period has now arrived, and not surprisingly, there appears to be no end in sight to the mounting deficits.

Unemployment Numbers Climb Again

Hopes that the economy might soon roar back and bring some relief from skyrocketing deficits remain unfounded for now.

Today’s new data on initial unemployment claims brought more bad news, as more than 1 million workers filed for unemployment benefits for the seventeenth week in a row. For the week ending July 11, initial unemployment claims totaled 1.3 million, a slight decrease from the 1.31 million workers who filed for new benefits the week prior. That’s in seasonally adjusted numbers. In unadjusted numbers, new claims actually increased from the previous week, rising from 1.4 million the week of July 4 to 1.5 million last week.

Mcmaken2

Since March, 51 million American workers have filed for unemployment. As of the week of July 4, 17.3 million continue to file for claims.

Moreover, June’s tax revenue suggests that worker income has plunged with employment.

Will earnings and jobs and tax revenue come roaring back in July? This is certainly not a given. After all, many states and jurisdictions are now reimplementing business closures, shutdowns, and other measures which will surely eat away at both jobs and tax revenue. As with the first round of business closures, retail sales and food services are likely to be most immediately impacted.

But underneath those industries are a wide variety of support industries, from janitorial to bookkeeping to commercial real estate, all of which will affect both blue-collar and white-collar hiring.

Tax Hikes on the Horizon?

As earnings and retail sales plunge, the greatest danger to economic recovery lies in the decline of state and local taxes. The threat does not lie with the tax declines themselves, but with the expected policy reaction. As school districts, city governments, and state legislatures face immense shortfalls in revenue, many are now increasingly talking about large tax increases to fill the budget hole. This will be crippling for businesses seeking to come back from the current round of business closures and the collapse in consumer demand for many services and products. Tax increases will cripple the ability of entrepreneurs to shift resources to more in-demand industries and start up new businesses where old ones fail.

Facing uncertainty about both tax increases and the threat of ongoing mandated business closures, many business will wait as long as possible to commit to new staff hires.

Mcmaken3

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

Ryan McMaken

Ryan McMaken

Ryan McMaken is the editor of Mises Wire and The Austrian. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

View all posts

Our Books

libertarian inst books

Related Articles

Related

Rights for the Synthetic

Rights for the Synthetic

"The future of human-AI coexistence depends on acknowledging the potential for sentient machines and reevaluating responsibilities towards them. It's crucial to consider the ethical implications of creating beings that may possess their own interests, desires, and...

read more
A Critique of Pure Hasbara

A Critique of Pure Hasbara

Hasbara is a central feature of genocidal Zionism: “Since its establishment in 1948, Israel has successfully created a new illogic of its own; an illogic that has made the illegal seem legal, the immoral appear moral and the undemocratic sound democratic. It has...

read more
On Wealth Inequality, the Left Has a Point

On Wealth Inequality, the Left Has a Point

The federal government has been waging a war against the middle class and working poor since at least 1970. Wealth inequality has steadily increased since the early 1970s, and it’s not a coincidence. It’s a result of a series of policies. The government wants the...

read more
Joe Biden’s Time Interview Should Set Off Alarms

Joe Biden’s Time Interview Should Set Off Alarms

On May 28, U.S. President Joe Biden gave an interview to Time. His delivery and content were concerning for a number of reasons. Biden, at times, seemed misinformed and detached from reality. Sometimes, he seemed off message; other times, he seemed convinced by his...

read more
DOJ, Lay Off Live Nation!

DOJ, Lay Off Live Nation!

Last month, the U.S. Department of Justice (DOJ) finally came out with their long anticipated antitrust lawsuit against Live Nation Entertainment. Alleging anti-competitive practices which “suffocates its competition,” everyone’s least favorite Attorney General (since...

read more
Why Libertarians Loathe Tariffs

Why Libertarians Loathe Tariffs

Former president and current Republican presidential candidate Donald Trump loves tariffs. In his 2011 book Time to Get Tough: Making America #1 Again, Trump included as part of his five-part tax policy “a 20 percent tax for importing goods.” During his first campaign...

read more

Pin It on Pinterest

Share This