CBO Predicts Persistently Large US Federal Deficit in Next Decade

12 April, 2018, 00:41 | Author: Bert Pena
  • Trump tax cuts forecast to send US deficit to $1 trillion in 2020

In fact America could be staring at a decade where the size of its debt and budget deficit starts growing faster than the economy, and if the economy slows, then the situation will worsen dramatically.

"The federal budget deficit grows substantially over the next several years", CBO Budget Director Keith Hall said Wednesday after his agency released the report.

The new report said that by 2028, the debt load will exceed 96 percent of GDP. "The bigger the debt, the bigger the chances of a fiscal crisis".

Others estimated that a dynamic score of the tax law - one that incorporated macroeconomic effects - would reduce the $1.5 trillion cost of the tax cut down to $1 trillion in added debt. But House Republicans scheduled a vote later this week on adding a balanced budget amendment to the Constitution, which could force some fiscal restraint.

Van Hollen also expressed worry that Republicans will use this news to cut into entitlement programs like Social Security. They could allow the middle-class tax cuts to expire, assuming Democrats would go along with extending them at some point later on. "In their craven haste to give corporations and the wealthiest 1% massive tax breaks, Republicans saddled our children and grandchildren with trillions of dollars of debt". CBO attributes these economic trends to the three major laws mentioned above, along with rising federal budget deficits over the ten-year window. Publicly held US debt will total $28.671 trillion by the end of 2028, amounting to over 96 percent of USA gross domestic product (GDP) that year.

Perhaps even more striking is the employment picture, where the economy is going gangbusters. CBO also projects 3.3 percent GDP growth in 2018 and 2.4 percent in 2019 - both higher estimates than CBO forecast a year ago. First, the rising possibility of a serious trade war with China, which could cause a tremendous amount of damage to our export sector, trigger a higher rate of inflation and a proportionate increase in interest rates, which would put the brakes on growth. By 2020 - just as Mr. Trump is facing voters for re-election - GDP growth will have slipped back below 2 percent.

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The federal deficit, or the gap between how much the government takes in in revenue and how much it shells out, is expected to skyrocket 21% over last year to reach $804 billion in the fiscal 2018 year ending September.

"Today's CBO report underscores the reality that the Republicans' $1.5 trillion tax plan will increase our already large national debt", wrote Democratic Senator Chris Van Hollen in a statement.

The Trump administration had promised the cuts would pay for themselves.

The official conservative party line during the Reagan era, when Republicans introduced the modern phenomenon of the large structural deficit, was that it was necessary to run the red ink in order to win the Cold War.

This year, lawmakers approved a two-year budget deal that raised strict caps on military and domestic spending by about $300 billion. The government would borrow about 19 cents of every dollar it spend this year. By 2020, when Mr. Trump is up for re-election, that will be 22 cents. "Now that it's upon us, those who have their heads buried in the sand are in for a rude awakening". But the outlook could be even worse than we thought. All it will take are sizable tax increases.

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