CBO Reports: Inflating Debt and Slowing Economic Growth Ahead
A new report released on April 9 by the nonpartisan Congressional Budget Office predicts that the federal deficit will rise substantially over the next decade due to both a new spending deal and the GOP tax plan passed last December. The CBO also projects that the U.S. national debt will approach 100 percent of GDP by 2028 (see below). The office warns that the deficit over each of the next ten years will be historically large, reaching levels only seen during World War II and the years following the 2007-2009 recession.
The report, which assumes that current laws regarding spending and taxes will remain unchanged, warns of a rising budget deficit and national debt. The GOP tax plan passed in December has temporary tax cuts for individuals, but will expire in 2025 resulting in less tax revenue until then. The CBO reports that if Congress were to extend these tax cuts past 2025, the debt would be even larger by 2028. The report also notes that the debt would rise if Congress were to extend the two-year spending bill approved in Feb. which increases spending over the next two years.
As for economic growth, the CBO expects increases in growth of real GDP over the next two years before slowing by 2020. The economy should grow quickly before the growth slows down again. From 2020-2026, the CBO predicts higher interest rates and prices, slower growth in federal spending, and the expiration of tax cuts (see below). Unemployment is expected to remain low, while interest rates are expected to rise.
While the economy will grow before slowing down in the years to come, the same CBO report warns of the dangers of such a high and rising national debt. Due to increases in federal borrowing reducing total saving in the economy, capital stock would be smaller and total productivity and wages would be lower. Growing debt would give lawmakers fewer options to adjust tax and spending policies. The rising debt would also make a fiscal crisis more likely in the United States. Debt levels this high could potentially damage the nation.
Following the report, House Minority Leader Nancy Pelosi (D-CA) tweeted in frustration regarding the report. Republican leaders President Trump, Paul Ryan, and Mitch McConnell have yet to respond to the report.