The COVID-19 pandemic has ballooned federal debt. Huge relief programs, alongside collapsed tax revenues in 2020, lifted debt from 79.4 percent of gross domestic product (GDP) in 2019 to 99.6 percent in 2021. As a result, the federal debt stood at its highest level since World War II.
When extreme events such as unexpected wars or pandemics hit, letting borrowing rise to fund one‐off spending or revenue shortfalls might make economic sense. Allowing federal debt to act as a shock absorber avoids sharp, destructive tax rate hikes or spending cuts. Instead, the crises’ costs can be spread over future generations. ….
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