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    10-Apr-2018

Federal Budget Deficit Projected to Soar to Over $1 Trillion in 2020

 

The New York Times

 

 WASHINGTON — The federal government’s annual budget deficit is set to widen significantly in the next few years, and is expected to top $1 trillion in 2020 despite healthy economic growth, according to new projections from the nonpartisan Congressional Budget Office released Monday.

 
The national debt, which has exceeded $21 trillion, will soar to more than $33 trillion in 2028, according to the budget office. By then, debt held by the public will almost match the size of the nation’s economy, reaching 96 percent of gross domestic product, a higher level than any point since just after World War II and well past the level that economists say could court a crisis.
 
The fear among some economists is that rising deficits will drive up interest rates, raise borrowing costs for the private sector, tank stock prices and slow the economy, which would only drive the deficit higher.
 
“Such high and rising debt would have serious negative consequences for the budget and the nation,” said Keith Hall, the director of the budget office. “In particular, the likelihood of a fiscal crisis in the United States would increase.”
 
The budget office forecast is the first since President Trump signed a sweeping tax overhaul, then signed legislation to significantly increase military and domestic spending over the next two years. The figures are sobering, even in a political climate where deficit concerns appear to be receding.
 
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The tax overhaul, which includes permanent tax cuts for corporations and temporary ones for individuals, will increase the size of the economy by an average of 0.7 percent from 2018 to 2028, according to the budget office.
 
But that added economic growth does not come close to paying for the tax overhaul, which the budget office said would add more than $1.8 trillion to deficits over that period, from lost tax revenue and higher interest payments.
 
Many Republicans have said the tax overhaul would vault economic growth over 3 percent a year for a sustained period, generating more revenue than the tax cuts would cost. But the budget office expects the economy to grow at an annual average rate of 1.9 percent over the next decade. Growth would start strong, at 3.3 percent this year and 2.4 percent next year, but then slow considerably.
 
And if the temporary tax cuts for individuals are extended past their scheduled expiration at the end of 2025, the price tag for the tax overhaul would be even greater.
 
Mr. Trump has talked about embarking upon “Phase 2” of tax cuts, which could include making those individual tax cuts permanent.
 
Democrats jumped on the projections to castigate Republicans over their economic record.
 
“From Day 1,” the Senate Democratic leader, Chuck Schumer of New York, said, “the Republican agenda has always been to balloon the deficit in order to dole out massive tax breaks to the largest corporations and wealthiest Americans, and then use the deficit as an excuse to cut Social Security and Medicare.”
 
Representative Nancy Pelosi of California, the House Democratic leader, was equally harsh: “The C.B.O.’s report exposes the staggering costs of the G.O.P. tax scam and Republicans’ contempt for fiscal responsibility.”
 
For their part, Republicans were remarkably quiet: “Without question, we have challenging work ahead,” said Representative Steve Womack of Arkansas, the chairman of the House Budget Committee.
 
This fiscal year, which ends Sept. 30, the budget deficit is expected to total $804 billion, up from $665 billion last fiscal year, according to the projections. In a decade, the red ink is expected to reach $1.5 trillion.
 
The forecast is considerably bleaker than the budget office’s projections in June last year, before Congress approved the tax cuts and agreed to increase spending.
 
The $804 billion projected deficit for the current fiscal year is $242 billion larger than what the budget office had expected in June. In addition, the budget office now projects a cumulative deficit of $11.7 trillion over the next decade, an increase of $1.6 trillion from last June’s projection for that time period.
 
By 2023, according to the budget office, interest costs are projected to exceed what the government spends on the military. By 2028, interest payments will reach $915 billion, more than triple the interest costs last year.
 
The government’s mounting debt has seemed of little consequence on Capitol Hill in recent months as Republicans in Congress passed a sweeping package of tax cuts. But in a sign that Republicans are growing concerned about the political liability of soaring deficits, the House will vote Thursday on a constitutional amendment to require balanced budgets.
 
Representative Jeff Duncan, a conservative Republican from South Carolina, took to Twitter to say, “To every House Democrat on social media today complaining about the debt and deficit for the first time: I look forward to seeing you vote for the balanced budget amendment later this week. That is of course assuming you are actually serious about addressing our debt.”
 
Since such constitutional amendments require two-thirds of the House and Senate to agree, it is unlikely to pass Congress, let alone be ratified by the states.
 
But the flurry of recent legislation is making it difficult for Republicans to continue blaming President Barack Obama and Democrats for the government’s fiscal condition.
 
This year, lawmakers approved a two-year budget deal that raised strict caps on military and domestic spending by a total of about $300 billion. That deal paved the way for Congress to pass a $1.3 trillion spending bill last month.
 
Before passing the tax overhaul and the spending legislation, lawmakers were already facing worrisome projections about growing deficits, driven by increased spending on Medicare and Social Security as well as growing interest costs.
 
The budget office now projects that the deficit will top $1 trillion two years sooner than it had expected last June.
 
The budget office did project economic benefits from the tax overhaul. Analysts said the law will increase employment by 1.1 million jobs over the next decade. The law will also raise Americans’ wages and salaries by an average of 0.9 percent annually, a less optimistic projection than White House economists offered last year when the bill was being considered.
 
The budget office analysis also projects that the law will result in interest rates that are a half percentage point higher than they would have been without it. In its early years, the budget office said, the law will boost the strength of the dollar, allowing Americans to buy more imports and sell fewer exports to the rest of the world — and thus, increase the national trade deficit, counter to Mr. Trump’s desire to reduce it.
 
Michael A. Peterson, the president and chief executive of the Peter G. Peterson Foundation, which advocates reining in budget deficits, said the report “confirms that major damage was done to our fiscal outlook in just the past few months.”
 
Mr. Hall, the budget office director, said that beyond a decade, the debt would continue to rise compared with the size of the economy. He warned of the possible consequences if lawmakers put off addressing the trajectory of the government’s finances.
 
“The longer you wait,” he said, “the more draconian the measures have to be to fix the problem.”
 
 

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