These erstwhile GOP champions of balanced budgets have enacted tax cuts and spending increases that will propel federal debt held by the public from three-quarters of the nation’s annual economic output at present to nearly 100 percent of it by 2028. The public debt last reached that level in 1947, after the United States had just financed the all-out global military effort of World War II. The Great Recession drove the debt higher again, though not quite to post-World War II levels. What’s extraordinary about the CBO’s forecast is that the impending debt surge is not forced on the nation by war or financial crisis: To the contrary, the administration and Congress are making it happen at a time of near-full employment.
Economics 101 calls for fiscal restraint during periods of full employment so as not to overheat the economy or waste resources better husbanded for future needs, both anticipated and otherwise. Yet the Trump administration has claimed there’s little or no risk in pushing the fiscal accelerator to the floor, because tax cuts will essentially pay for themselves in additional economic growth. In December, the Treasury Department issued a one-page statement asserting that the tax cuts (and other Trump policies) would raise annual growth rates to an average of 2.9 percent over the next decade — from 2.6 percent in 2017 — thus producing more than enough revenue to pay for the $1.5 trillion reduction in taxes, mostly for businesses and the wealthy.
The CBO’s reality check suggests otherwise. The economy will indeed get a short-term boost, growing at 3.3 percent this year and 2.4 percent next — before reverting to a more sustainable rate just below 2 percent from 2020 on. That’s why the debt will keep mounting; and it will get even worse, according to the CBO, in the likely event that Congress votes to make the individual tax reductions in the 2017 law permanent, rather than expiring in 2025 as currently scheduled. Steven Mnuchin, the treasury secretary, said Friday that such a move is indeed under consideration. “I think we’ll have the growth to show that we can afford that,” Mr. Mnuchin said.
Over the next decade, the CBO notes, federal spending will exceed revenue by between 4 percent and 5 percent each year. That might be defensible if more of the borrowings were being used for investments — infrastructure, education, research — that enhance the economy’s long-term ability to grow. Instead, Republican fiscal policy disproportionately benefits well-to-do individuals. The longer the federal government persists in this mismanagement, the higher the ultimate cost of correcting it.
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