The U.S. annual budget deficit will exceed 1 trillion dollars by 2020, as tax cuts and spending increases signed by President Donald Trump strain the country's finance, the nonpartisan Congressional Budget Office (CBO) said on Monday.
But those growth rates will not offset the deficits, which will "increase rapidly this year and over the next few years", then stabilize, resulting in a projected cumulative deficit of $11.7 trillion for 2018-2027, CBO forecast.
CBO says economic growth from the tax cuts will add 0.7 percent on average to the nation's economic output over the coming decade.
The Trump administration had promised the cuts would pay for themselves.
The policy implications are clear: substantial entitlement reforms are, and always were, necessary if the United States were to have any hope at preventing ever-rising federal debt (as Brian Riedl indicates in this excellent post).
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The CBO's annual report on the USA budget and economy typically comes out in January but was delayed this year to allow it to assess effects of the tax overhaul and spending bill. "We have clear evidence that the McConnell-Ryan tax law is blowing a hole in our federal budget and contributing to higher costs for families accessing health through the marketplace". Those surpluses turned to deficits after tax cuts under President George W. Bush, as well as sharp increases in military spending for the wars in Afghanistan and Iraq. The White House is also likely to propose rolling backing some of the domestic spending increases in last month's government-wide funding bill.
"Anyone who argues this course can continue is living with blinders", said Campaign to Fix the Debt Co-chairmen Judd Gregg, a former GOP senator, and Ed Rendell, a former Democratic governor. Deficits can snowball, as larger deficits require larger interest payments, pushing the government to borrow more and more money to close the gap.
"It's all hand-waving and conjecture: There's no grounding in valid economic principles that this is a debt crisis", said Stephanie Kelton, a left-leaning economics and public policy professor at Stony Brook University and a former economic adviser to Sen.
For 2018, the deficit is expected to top $800 billion, about $140 billion more than the shortfall past year.
Republicans treated deficits of this scale as unsafe portents of civilizational collapse during Barack Obama's first term, when the economy was recovering from the greatest financial crisis in three-quarters of a century. The economic growth promises to drop the nationwide unemployment rate below 4%, the CBO predicted.