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11 April 2018, 12:43 | Damon Campbell
CBO Predicts Persistently Large US Federal Deficit in Next Decade
According to the Congressional Budget Office (CBO), the USA will return to trillion-dollar annual budget deficits from 2020 onwards as the tax cuts pushed by Trump and Republicans, and higher public spending, strain America's finances.
The CBO's annual report on the US 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.
Donnelly said, "This report confirms my serious concerns about the ballooning deficit, which Speaker Ryan has said he wants to pay for through cuts to Medicare and Social Security, putting seniors and retirees at risk". CBO projects that the new laws will increasedeficits by $2.7 trillion - $1.7 trillion in lower revenue as a result of the tax cuts and $1 trillion in higher spending. But running huge deficits during a time of sustained, if modest, economic growth and high interest rates is the worst possible thing you can do.
"We expect interest rates to accelerate faster", said CBO's Hall.
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. "Federal debt is projected to be on a steadily rising trajectory throughout the decade".
The budget deficit, a condition where expenditures exceed revenues, has been on a roller coaster in recent years because of the Great Recession and the subsequent recovery.
In its 2017 projection, the CBO estimated that by 2027 the national debt would comprise 88.9 percent of the gross domestic product, just below the level at which economists say its load would itself harm the economy.
"Productivity growth returns to almost its average over the past 25 years and recent changes in fiscal policy boost incentives to work, save, and invest; nonetheless, economic growth is held down by slower growth of the labor force", the CBO said.
Despite stronger-than-predicted economic growth ahead, the CBO said the deficit will grow to $804 billion in fiscal 2018, which ends on September 30, up from $665 billion in fiscal 2017.
The deficit would permanently breach the $1 trillion mark in 2020 unless Congress reins it back, the CBO said.
"The tax cuts passed a year ago actually added an amount to America's long-run fiscal challenge that is roughly the same size as the pre-existing shortfalls in Social Security and Medicare".
It lifted its economic growth forecast for this year and next to 3.3% and 2.4% respectively. The deficit will average 4.9 percent of GDP over the 2019-2028 period, exceeding average economic growth over the same period by almost a percentage point. Moreover, if lawmakers changed current law to maintain certain current policies-preventing a significant increase in individual income taxes in 2026 and drops in funding for defense and nondefense discretionary programs in 2020, for example-the result would be even larger increases in debt.
Interest Payments: Interest payments on the debt will reach $915 billion in 2028.
He also warned against the Republicans' push for a balanced budget amendment to the Constitution, saying it would tie policymakers' hands during economic downturns, preventing them from injecting any spending stimulus.
"This high and rising debt matters because it harms our economy, by crowding out public and private investment, reducing our fiscal flexibility, and lowering confidence and certainty". All it will take are sizable taxincreases.
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