U.S. officials now see the budget deficit exceeding $1 trillion annually for much of the next decade, the Congressional Budget Office (CBO) said this week. The estimates were reported by the New York Times and other media outlets. The red ink is expected to ultimately top $1.7 trillion in 2030, CBO says.
The ballooning deficit is being fueled by increased borrowing by the federal government, which continues to spend more money than it takes in. By 2030, the CBO projected, federal debt held by the public will surpass $31 trillion — about 98 percent of the forecast size of the nation’s economy.
The federal budget deficit already hit $1 trillion last year — the first calendar year since 2012 that the gap between revenue and spending topped the $1 trillion mark. CBO sees that as a “permanent pattern” over the next 10 years.
The somber news was tempered somewhat by the budget office’s expectation that interest rates for the next decade would be substantially lower than what its August forecast indicated, saving the United States hundreds of billions of dollars in interest payments on the federal debt.
The decline in interest rate projections reflects a shift in strategy by the Federal Reserve which cut rates last year amid slowing growth and little sign of sustained price increases that could spiral into rapid inflation. The budget office now expects the interest paid by 10-year Treasury bills to remain below 3 percent through 2027.
President Donald Trump has pushed Fed officials to reduce rates even further, toward zero or even into negative territory. On Tuesday, hours before the new forecast was issued, he suggested lower rates would allow the United States to “refinance” its debt and begin to pay it off.
The administration had promised to pay off the national debt during the 2016 campaign but in three years in office it has added to it with big tax cuts and increased federal spending.
The president and Republican lawmakers have claimed the tax cuts will pay for themselves through increased economic growth, which would ostensibly produce higher tax revenues. Treasury Secretary Steven Mnuchin repeated that assertion last week in Davos, Switzerland.
But while the 2017 tax cuts produced an uptick in growth in 2018, federal revenues declined. The latest CBO forecast shows no indication that officials there expect rapid growth will return any time soon, as the administration has projected.
The budget office estimates the economy grew more slowly last year than it predicted in August, and sees annual growth declining from 2.2% in 2020 to 1.5% by the middle of the decade. The new forecast anticipates a sharper decline in overall tax receipts through 2029 than did the August projections.
Democrats, Republicans and independent fiscal hawks all found cause for concern after the recent report.
The forecast “confirms that the president’s economic policies did not create a sustained boost for the economy like he has claimed,” said Rep. John Yarmuth, D-Ky., chairman of the House Budget Committee.
The committee’s top Republican, Steve Womack of Arkansas, said the forecast “once again confirms what we already know: our nation’s debt and deficits continue to grow, and we are on an unsustainable trajectory.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said the latest numbers should serve as a wake-up call for policymakers.
“We’re running trillion-dollar deficits while the economy is expanding — when are lawmakers going to wake up?” she said. “Every year we set a new postwar record for debt as a share of the economy, every year the Congressional Budget Office warns that debt is rising unsustainably, and every year our largest trust funds get closer to depleting their reserves. Ignoring what is staring us right in the face is fiscal malfeasance.”
Clearly, the trillion dollar estimates are attention-catchers—and can be expected to add emphasis to questions regarding how remaining urgent needs, such as the need for renewing the nation’s infrastructure, can be met without de-stabilizing the economy. These continue to be critical issues and should be
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