Tuesday, 16 October, 2018

CBO: US deficit set to reach $1 tril. by 2020

CBO: US deficit set to reach $1 tril. by 2020 CBO: US deficit set to reach $1 tril. by 2020
Gerardo Duncan | 12 April, 2018, 00:43

In its 11-year estimate, CBO estimated that interest payments would account for $582 billion of the $1.9 trillion total deficit increase.

Jeff Stein, The Washington Post •.

The report released on Monday was the CBO's first comprehensive fiscal and economic outlook since the tax and spending legislation enacted by the US Congress late past year.

"The federal budget deficit grows substantially over the next several years", CBO Budget Director Keith Hall said Wednesday after his agency released the report.

In fact America could be staring at a decade where the size of its debt and budget deficit starts growing faster than the economy, and if the economy slows, then the situation will worsen dramatically.

According to the report, the tax law would cost the government $2.3 trillion in revenues, but economic growth would offset that figure by about $461 billion.

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.

Screen Shot 2018 04 09
Economic Effects of the 2017 Tax Act on Real GDP Congressional Budget Office

The CBO's forecast shows the fiscal stimulus will lift growth rate in short term, but do little to boost economic prospect in longer term.

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. More speculatively, higher wages and less competition in the labor force could actually raise the fertility rate among Americans, ultimately contributing to a larger labor force than the CBO now expects. No mention of the "voodoo economics" idea of dodgy economists that lower taxes generates higher spending and lower deficits. Deficits would grow to $1.5 trillion by 2028 - and could exceed $2 trillion if the tax cuts are fully extended and if Washington doesn't cut spending. At the same time, the long-term budget forecast counters the GOP's arguments that tax cuts will pay for themselves through economic growth.

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

"Anyone who argues this course can continue is living with blinders", said Campaign to Fix the Debt Co-chairmen Judd Gregg, a former GOP senator, and Ed Rendell, a former Democratic governor. Trump has ruled out cuts to social security or Medicare and Republicans on Capitol Hill have failed to take steps against the deficit since Trump took office.

"It's going nowhere", said Sen.

It warned that it would have "serious negative consequences" for the US. The modern Republican Party has pioneered a completely novel theory: Governments should balance their budgets when run by Democrats, and run extremely large deficits when run by Republicans.

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