“The federal budget deficit grows substantially over the next several years,” CBO Budget Director Keith Hall said Wednesday after his agency released the report. “Federal debt is projected to be on a steadily rising trajectory throughout the decade.”
The tax law that President Trump and congressional Republicans passed in December will cut government revenue by $1.3 trillion from 2018 to 2028, the CBO reported. When the costs of paying interest on that debt are included, the tax cuts’ total addition to the deficit comes to $1.9 trillion, the CBO said.
During debate on the bill, Republican leaders predicted that their proposal would spark massive economic growth that would limit — or even eliminate — additions to the deficit. But the CBO projected Monday that the bill would boost economic growth 0.7 percent over a decade — not enough to keep it from adding to the deficit.
Members of both parties further added to the deficit in March when they increased military and domestic spending by nearly $300 billion over the next two years.
The CBO reported that from 2021 to 2028, deficits will average 4.9 percent of the total American economy — higher than at any point since World War II other than during the recession in 2008 and 2009.
Annual deficits topped $1 trillion from 2009 to 2012, because of greater spending on social safety net programs and economic stimulus, as well as slumping tax receipts as the economy cratered. But the current deficit increases come amid steady economic growth and low unemployment, a time when many economists recommend paying down the deficit.
“The timing of this is really concerning because we’re not coming out of a recession,” Hall said Monday.
The ballooning deficits reflect a growing gap between the level of military services and social spending the government is promising and how much it’s willing to tax Americans to pay for them. The current national debt, including projected future spending on social programs, totals more than $20 trillion.
“We’ve had a big tax cut and a big spending increase, and they’re showing up here,” said Benjamin Page, a senior fellow at the Tax Policy Center, a nonpartisan think tank.
Republicans and Democrats alike bemoaned the growing deficits Monday but offered opposing suggestions for how to deal with it.
Senate Minority Leader Charles E. Schumer (D-N.Y.) blamed the new tax law.
“The CBO’s latest report exposes the scam behind the rosy rhetoric from Republicans that their tax bill would pay for itself,” Schumer said in a statement Monday. “From day one, 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.”
Sen. James Lankford (R-Okla.) said the tax bill had helped stimulate growth, but that reining in the deficit would require slowing down increasing spending on social programs.
“To address our federal debt, we must slow the growth of entitlement spending, increase revenues with a growing economy, and make responsible spending cuts,” Lankford said in a statement. “The economy is improving, with the help of tax reform, but we now must get serious about spending reform and cuts.”
House Republicans are also expected to vote this week on a balanced-budget amendment to the Constitution, which would force federal revenue and spending to balance. That plan is widely viewed as a symbolic measure with little chance of passing Congress or winning the necessary ratification from the states.
Ultimately, neither party appears to have a deficit-reduction proposal that could get enough support from the other to pass.
If Congress continues to let deficits balloon, it faces several long-term risks. Deficits can snowball, as larger deficits require larger interest payments, pushing the government to borrow more and more money to close the gap.
The government has been able to finance its debt relatively cheaply because of a decade of historically low interest rates since the recession. But now the Federal Reserve is raising rates, meaning the government’s borrowing costs are projected to increase.
And as the government borrows more, it risks crowding out private investment that would have stimulated more economic growth, the CBO warned.
There is a nightmare scenario in which borrowers lose faith in the country’s ability to pay back its debts, demanding higher interest rates on their loans and setting off a spiral of larger deficits and still-higher rates.
“The bigger the debt, the bigger the chance of a fiscal crisis,” Hall said Monday. “The longer you wait, the more draconian the measures have to be to fix the problem.”
Still, some economists are skeptical of the peril posed by deficits, noting that during the Obama administration many deficit hawks warned of a fiscal crisis that has so far failed to materialize. Deficit hawks also predicted runaway inflation, but the growth in prices has been muted thus far.
“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. Bernie Sanders (I-Vt.). “It’s just conjecture.”
America last ran annual budget surpluses from 1998 to 2001, amid healthy growth in the economy at the end of President Bill Clinton’s administration. 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.