Budget Office Says Virus Stimulus May Dull Economic Output

By Adam Lidgett
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Law360 (September 21, 2020, 6:59 PM EDT) -- Various federal laws meant to mitigate the effects of the COVID-19 pandemic will likely cause about $2.9 trillion collectively to be added to the federal deficit this year and in 2021, according to the Congressional Budget Office.

In a Friday report, the nonpartisan budget agency said that four important pieces of coronavirus-related legislation passed earlier this year are "projected to add $2.3 trillion to the deficit in fiscal year 2020 and $0.6 trillion in 2021."

In the short term, the laws will likely "increase the level of real (inflation-adjusted) gross domestic product ... by 4.7% in 2020 and 3.1%" next year, the CBO said.

In the longer term, however, the CBO said that it believes borrowing costs will end up being higher as a result of the legislation.

What's more, the CBO said, economic output is expected to be muffled and the income of U.S. homeowners and businesses will also see a decline.

"Over the next several years, as a result of the pandemic, output is projected to remain well below its potential level, and inflation is projected to stay below the Federal Reserve's long-run objective," the CBO said. "CBO therefore expects that the Federal Reserve will not respond to the legislation's effect on demand by raising short-term interest rates."

The CBO report focused on various laws passed earlier this year, among them the Coronavirus Preparedness and Response Supplemental Appropriations Act. That law, which passed with nearly unanimous support in Congress and was signed into law in early March, provided $8.3 billion in emergency funding for federal agencies to respond to the COVID-19 outbreak.

The CBO also looked at the Families First Coronavirus Response Act, a federal leave law that requires most employers with fewer than 500 workers to provide paid time off to workers who can't do their jobs for reasons related to the coronavirus.

Additionally, the CBO considered the Coronavirus Aid, Relief and Economic Security Act — or CARES Act — and the Paycheck Protection Program and Health Care Enhancement Act.

The CARES Act provided billions of dollars in loans to small businesses for their payroll and to cover other expenses during the COVID-19 pandemic, and the Paycheck Protection Program and Health Care Enhancement Act provided billions of dollars to the Paycheck Protection Program.

The CBO projected that even though payouts and tax credits resulting from those laws will allow for increases in the demands of goods and services, "the short-term boost in economic activity caused by the legislation will be tempered by social distancing, especially during the second and third quarters of this year."

--Additional reporting by Michele Gorman, Braden Campbell, Rachel O'Brien and Elise Hansen. Editing by Daniel King.

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