America’s federal deficit will expand by $800 billion more than previously expected over 10 years due primarily to two legislative packages approved this year, piling the nation further into levels of debt unseen since the end of World War II, the Congressional Budget Office said Tuesday.
The United States was already expected to hit about $1 trillion in annual deficits next year, an unusually high number particularly given that deficits normally contract during sustained periods of economic growth.
But that shortfall will expand by $1.9 trillion in new spending due to a budget deal to avoid the spending cliff reached by congressional Democrats and President Donald Trump, and an emergency spending package for the crisis at the U.S.-Mexico border.
Those budget increases will be partially offset by lower spending than projected because of cuts to interest rates, which along with other changes to the CBO’s forecasts reduce expected federal spending by about more than $1 trillion over the next decade.
The CBO report is likely to intensify concerns that the United States does not have enough fiscal space to stimulate the new economy to avoid a recession – such as the payroll tax cut recently floated by the president – although some economists say those fears are overblown.
“Deficits are now expected to be larger than previously projected,” the CBO report states. “To put (debt) on a sustainable course lawmakers will have to make significant changes to tax and spending policies.”
The expanding shortfall is driven largely by falling tax revenue, driven lower in part due to the 2017 Republican tax law signed by Trump that slashed rates for corporations and individual earners. In 2016, the CBO projected revenue would equal roughly 18 percent of America’s economy by 2018 and 2019, a number now down to 16.5 percent and projected to remain at roughly that level.
The budget deal reached by Trump and congressional Democrats will add $1.7 trillion to the deficit over 10 years, while the emergency supplemental package for the border will add $255 billion, according to the CBO, a nonpartisan agency.
The CBO also said that higher trade barriers, mostly in the form of higher tariffs, would reduce U.S. Gross Domestic Product by about 0.3 percent by 2020 than would have otherwise been the case.
By the end of next decade, America’s federal debt will approximately equal the entire nation’s economy or GDP.