Published: Wed, April 11, 2018
Markets | By Josh Butler

USA budget deficit to hit $1 trillion by 2020

USA budget deficit to hit $1 trillion by 2020

With the passage of deep tax cuts late a year ago, annual United States budget deficits are expected to balloon over the next decade, the nonpartisan Congressional Budget Office said on Monday.

Turning to the budget projections, we estimate that the 2018 deficit will total $804 billion, $139 billion more than the $665 billion shortfall recorded in 2017.

The national debt is on track to approach 100 percent of gross domestic product (GDP) by 2028, said the nonpartisan CBO, which analyzes legislation for Congress.

Trump celebrates the passage of the Tax Cuts Act with Vice President Mike Pence, Senate Majority Leader Mitch McConnell, and Speaker of the House Paul Ryan on December 20, 2017. Starting in 2020, those gains are expected to taper off. "Between 2018 and 2028, real actual output and real potential output alike are projected to expand at an average annual rate of 1.9 percent", wrote CBO director Keith Hall.

The Congressional Budget Office's projections for President Trump's tax cuts are not good. It also warns that interest rates on government borrowing will also spike, with the benchmark 10-year Treasury note averaging a 3.0 percent interest rate this year and 3.7 percent next year.

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According to the CBO, the $1.3 trillion federal spending package as well as tax cuts are anticipated to push economic growth, pushing discretionary spending from businesses and households in the next two years.

The deficit will be $1 trillion by 2020 and $1.3 trillion a year by 2025. The Trump tax cuts were designed with permanent cuts for corporations and heirs of large estates, coupled with temporary, expiring tax cuts for the middle class.

"Now that those tax cuts are in place, I predict that deficits will once again morph into a dire problem - a scourge upon the nation - an excuse for Republicans to target Medicare, Medicaid, and Social Security for cuts", Schumer said. They did this because the $1.5 trillion budget limit did not allow them enough money to cut all the taxes they wanted to cut.

The Republicans were strident critics of that spending and President Obama personally, but have remained silent as Trump and themselves agreed to even greater unfunded spending.

The CBO is now projecting a cumulative deficit of $11.7 trillion over the 2018-2027 period, which is $1.6 trillion larger than its projection in June. The government would borrow about 19 cents of every dollar it spend this year. For instance, he promised to "reduce our $18 trillion in debt", said he would "freeze the budget" and even told journalist Bob Woodward he could get rid of the debt "fairly quickly". 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. All it will take are sizable tax increases.

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