CBO: GOP policies add almost $1.6 trillion to deficit

Donald Trump's tax cuts and spending increases are forecast to inflate the US deficit

Jeff Stein, The Washington Post •.

The non-partisan Congressional Budget Office (CBO) expects the Republican tax reform bill and 2018 congressional budget agreement to grow the economy over the coming years, but adds almost $2 trillion to federal deficit over the next decade. The projected deficit for fiscal 2018 is $242 billion larger than the shortfall the agency projected back in June. The CBO projects that by 2028 federal interest costs would exceed $900 billion, almost triple what they are this year in nominal terms, and roughly double as a percentage of GDP.

The analysis "confirms that major damage was done" by the new tax law and the spending bill, said Michael Peterson, head of the non-partisan Peter G. Peterson Foundation.

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.

That review looked at the impact of the Trump legislation which slashed cutting taxes by $US1.5 trillion over 10 years, followed by a bill passed in March that lifts ceilings on discretionary spending over two years.

"The only time since World War II when the average deficit has been so large over so many years was after the 2007-2009 recession", the budget office noted. The CBO said the deficit for fiscal 2018 would total $804 billion, up from $665 billion in the last fiscal year. All in all, the report paints a bleak outlook for the federal deficit unless Congress stems its spending. They're expected to remain near 21% of GDP over the next three years, then grow more quickly, topping 23% of GDP by 2028. Those effects will only partially offset the deficit cost of the tax cuts.

Republicans and Democrats alike bemoaned the growing deficits Monday but offered opposing suggestions for how to deal with it.

The CBO report said the tax cuts will give a serious boost to the economy in the near term. The expiration of lower individual tax rates at the end of 2025 will add to slowed economic growth then, the CBO added. "Analysts have said for years that a debt problem was looming on the horizon", said Shai Akabas, economic policy director at the Bipartisan Policy Center. But such a measure has little chance of passing and the effort will largely be about political messaging.

The CBO also said the deficit would continue to climb over that decade. Deficits can snowball, as larger deficits require larger interest payments, pushing the government to borrow more and more money to close the gap. If interest rates go up, the government would have to pay much more to finance the more than $14tn in treasury debt held by investors.

Among several promises Trump made on the campaign trail regarding federal spending, one was to eliminate the deficit. The CBO's new projections are a warning that elected officials in Washington must pursue far more responsible fiscal policies than in the past.

"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".

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.

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