Monday, 23 July, 2018

Deficit to top $1 trillion per year by 2020, CBO says

By Amanda Becker By Amanda Becker
Lindsey Cook | 11 April, 2018, 13:59

The massive tax cuts signed into law in December, which Republicans said would pay for themselves, will balloon the USA deficit in years ahead, the Congressional Budget Office said on Monday, possibly hobbling President Donald Trump's future agenda.

The budget deficit will be 4.2% of the nation's gross domestic product in 2018, and will grow to 5.1% in 2022, the CBO estimates.

The new CBO projection is the first since President Donald Trump signed a tax cut that is expected to cost the government almost $1.9 trillion over 11 years, then signed legislation to significantly boost military and domestic spending over the next two years.

As a result, federal debt is projected to be on a steadily rising trajectory throughout the coming decade.

Economic growth will climb to 3.3 percent this year thanks to the fiscal stimulus from tax cuts and increased spending, but will fall to 2.4 percent in 2019 and 1.8 percent in 2020. The tax law is projected to add at least $1.5 trillion to the national debt over the next debate. But the current deficit increases come amid steady economic growth and low unemployment, a time when many economists recommend paying down the deficit.

The report released on Monday was the CBO's first comprehensive fiscal and economic outlook since the tax and spending legislation enacted by the US Congress late previous year.

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The CBO notes that the revenue growth in later years could decline if lawmakers decide to prevent a "significant increase in individual income taxes in 2026" and reverse funding declines for defense and nondefense discretionary programs in 2020, which would result in "even larger increases in debt". Trump has ruled out cuts to social security or Medicare and Republicans on Capitol Hill have failed to take steps against the deficit since Trump took office.

In CBO's economic projections, which underlie its budget projections, output grows at a faster pace this year than in 2017, as the recent changes in fiscal policy add to existing momentum in spending on goods and services. "The American people deserve a Congress that is focused squarely on helping the middle class, not patronizing Kabuki theatre - like sham "balanced budget" votes - from Republicans who blew up the deficit to benefit wealthy special interests".

No matter what the economic indicators imply, the Trump administration doesn't hesitate from making wildly exaggerated claims, as the White House spokesperson Raj Shah said on Fox News that the Trump budget "has over $3 trillion dollars in deficit reduction, which is the largest deficit reduction of a budget in terms of a 10-year outlay that we've ever seen".

The CBO typically releases its yearly forecast in January, but Monday's projections were delayed to reflect major tax legislation enacted in December and a subsequent two-year budget agreement.

The CBO said the tax cuts and the additional spending will boost consumer demand, supercharging the economy. For instance, he promised to "reduce our $18 trillion in debt", said he would "freeze the budget" and even told journalist Bob Woodward he could get rid of the debt "fairly quickly".

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