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CBO Predicts Persistently Large US Federal Deficit in Next Decade

11 April 2018

The federal government's annual budget deficit is set to widen significantly in the next few years, topping $1 trillion in 2020 despite healthy economic growth, according to new projections from the nonpartisan Congressional Budget Office.

The increase stems primarily from tax and spending legislation enacted since then-especially Public Law 115-97 (originally called the Tax Cuts and Jobs Act and called the 2017 tax act in this report), the Bipartisan Budget Act of 2018 (P.L. 115-123), and the Consolidated Appropriations Act, 2018 (P.L. 115-141).

The report does say the USA gross domestic product is likely to grow faster than previously thought this year.

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Senator Chuck Schumer of NY said the report "exposes the scam behind the rosy rhetoric from Republicans that their tax bill would pay for itself" and warned that Republicans will now use the rising debt to call for cuts to welfare programmes such as Social Security. CBO projects that the new laws will increase deficits by $2.7 trillion - $1.7 trillion in lower revenue as a result of the tax cuts and $1 trillion in higher spending. "Deficits as far as the eye can see" used to be considered a problem, but we have now reached a remarkable new milestone of fiscal irresponsibility: trillion-dollar deficits as far as the eye can see. 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 US hasn't run deficits exceeding a trillion dollars since 2012.

The rising deficit means that a larger part of the government's spending is paid for voluntarily by investors rather than compelled payments taken from taxpayers. CBO's projections, especially its economic projections, are even more uncertain than usual this year, because they incorporate estimates of the economic effects of the recent changes in fiscal policy-and those estimates are themselves uncertain.

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The CBO also estimated that the stimulus effect of the tax cuts will add 0.7 percent on average to the nation's economic output over the coming decade.

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 deficit will average 4.9 percent of GDP over the 2019-2028 period, exceeding average economic growth over the same period by almost a percentage point.

The government's mounting debt has seemed of little outcome on Capitol Hill in recent months as Republicans in Congress successfully worked to pass a sweeping package of tax cuts. On Monday, the 10-year Treasury Note yield was 2.7865 percent, up only a bit from the Friday yield of 2.779 percent. But in an indicator that Republicans are becoming concerned about the political liability of surging shortages, " the House will vote Thursday to a constitutional amendment to require balanced funding. 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.

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"The sun rises in the east, and tax cuts result in less revenues".

CBO Predicts Persistently Large US Federal Deficit in Next Decade