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GOP tax cuts to balloon US deficit, debt: Congressional Budget Office
[WASHINGTON] The US deficit will grow more than 20 per cent this year and reach US$1 trillion by 2020, largely due to December's sweeping tax cuts, the Congressional Budget Office said Monday.
Stimulus from the tax cuts and subsequent spending increases will also boost short-term growth in the United States but not by as much as the White House expects, according to the CBO.
In December, President Donald Trump and Republican lawmakers slashed corporate and personal income tax rates to boost growth, a manoeuvre opposition Democrats denounced as a giveaway to the rich.
The budget deficit will grow to US$804 billion in 2018, or 4.2 per cent of GDP, up from US$665 billion in 2017. Prior to the stimulus package, the CBO had forecast the deficit would instead shrink to US$563 billion.
By 2020, the US budget deficit will rise to just over a trillion dollars and will exceed 5 per cent of GDP by 2022.
At the same time, GDP growth will rise to 3.3 per cent this year before cooling to 2.4 per cent the following year, in line with recent trends.
The Federal Reserve forecasts growth of 2.7 per cent in 2018 and 2.4 per cent in 2019.
The Trump administration is banking on higher growth to boost tax revenues and thus pay for the tax cuts, but economists say this is unrealistic.
As debt service costs mount due to rising interest rates, according to the CBO, the United States will be required to continue borrowing to make up for the lower tax revenues.
US sovereign debt will reach 100 per cent of GDP in the next decade as a result.
Debt incurred by the US Treasury alone, which is projected to reach US$16 trillion by the end of 2018, will swell to US$29 trillion by 2028, or 96 per cent of GDP.
"That percentage would be the largest since 1946 and well more than twice the average over the past five decades," the CBO said in presenting the findings.
"Such high and rising debt would have serious negative consequences for the budget and the nation."