How Are We Going To Pay For This? That’s The $5.7 Trillion Question

We are 14 months into what many of us would agree is one of the most disruptive crises we will experience in our lifetimes. The word unprecedented has been used so often, it almost makes the unnormal normal. Life has changed so much that previously unthinkable situations, such as having our children learning alongside us working from home and pets getting themselves involved in work meetings on Zoom, have become par for the course.

There is no question as to the severity of this pandemic from a health standpoint. And there is no question that this has led to a massive disruption to the functioning of the economy. In order to avoid an even worse scenario than what we have experienced (a significant economic depression), the economy needed support. It came—in the form of unprecedented stimulus from the U.S. government. How much stimulus? A LOT!  My focus here is a domestic one, pertaining solely to the United States and the potential impacts of the stimulus measures on U.S. tax policy.

The bottom line

Let’s get right to it. What we are talking about is a MASSIVE sum of money in the form of economic stimulus. It’s significant in both its magnitude as well as the compressed period of time in which it was injected into the economy. The total sum as of right now is north of $5.7 trillion. Let that number sink in for a moment. That’s a lot of zeros.

This stimulus wasn’t just a one-time injection: it came in multiple tranches. With all the changes in our lives over the last year, it’s easy to lose track of everything being done to combat the pandemic. That includes mundane things such as all of the different tranches of fiscal stimulus.

(Click on image to enlarge)

Cost of Covid relief

Source: Federal Reserve Bank of St Louis; Wikipedia.com; USA Today; Investopedia.com

We have not seen the U.S. government commit to an outlay of this magnitude aside from the two world wars. Let’s put this in context: the federal budget deficit as a result of this is expected to be more than 16% as a percent of gross domestic product (GDP) … for TWO years in a row using consensus estimates. Again, these are not small numbers and rival the outlays we spent as a country during the darkest of days of World War I and II. By comparison, the Economic Stimulus Act of 2008 that pulled the country out of the Global Financial Crisis cost $152 billion or 1% of GDP.1

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