By John McCormick 

Federal spending soared in March as the government sent a third round of stimulus payments to Americans, pushing up the budget deficit to a record $1.7 trillion in the first half of the fiscal year.

The budget gap is now more than double what it was for the same period a year ago, the Treasury Department said Monday. The Covid-19 pandemic and related shutdowns sent the economy into a tailspin starting in March 2020.

The deficit was $660 billion last month, 454% higher than it was in the same month a year ago. Revenue rose 13% to $268 billion, while spending increased 161% to $927 billion.

The government's spending surge has provided some cushion to the economy from the pandemic's devastation, but it has also sent deficits soaring to levels not seen since the end of World War II as a proportion of the economy. Weaker tax revenue has contributed to the shortfall.

"The increase in the deficit since before the pandemic is hard to wrap one's head around," said Wendy Edelberg, a former Congressional Budget Office chief economist who in June became director of the Hamilton Project, a think tank affiliated with the Brookings Institution.

"But we have to understand those numbers in the context of the crisis we are living through," she said. "The pandemic has led to a temporary loss of more than 10 million jobs. The robust fiscal response has made me more optimistic about our economic future."

Outlays from October through March rose to $3.4 trillion, an increase of 45%. Receipts rose 6% to $1.7 trillion.

Budget deficits are likely to remain at the center of debates over the Biden administration's next major legislative effort: a roughly $2.3 trillion proposal that aims to bolster long-term economic growth through investments in infrastructure, clean energy and education.

A bipartisan group of lawmakers was set to meet with President Biden Monday about his $2.3 trillion infrastructure proposal, as Republicans and Democrats seek to determine whether they can reach an agreement on such a package's size, scope and funding.

Republicans have criticized several aspects of the plan, including proposed tax increases on corporations and the broad scope of the spending. Some GOP lawmakers have instead pushed for the White House to advance a much narrower infrastructure bill.

Higher costs for unemployment benefits, nutrition assistance, healthcare and assistance to small businesses pushed government spending higher, while stronger corporate tax collection and remittances from the Federal Reserve lifted revenue, Treasury officials said.

The budget gap is on track to widen further, following enactment of a $1.9 trillion aid package passed last month with only Democratic votes that provided another round of stimulus checks for many Americans, extended enhanced jobless benefits and provided billions of dollars for vaccine distribution and school reopenings.

The Congressional Budget Office projects the deficit for the fiscal year ending Sept. 30 will total $2.3 trillion, almost $1 trillion less than last year's record gap but more than officials projected in September.

Even before the latest aid package was passed, the CBO projected that federal debt would equal 102% of gross domestic product in 2021. It has exceeded that level only twice before in U.S. history, in 1945 and 1946, following a surge in federal spending as a result of World War II.

Treasury officials said Fed remittances sent to the government have increased 33% so far this fiscal year compared with last year, as lower interest rates have held down the central bank's costs and its growing portfolio of securities has yielded greater income.

Write to John McCormick at mccormick.john@wsj.com

(END) Dow Jones Newswires

April 12, 2021 16:25 ET (20:25 GMT)

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