Deficit Trade

CBO: The Deficit Will Expand By An Additional $800 billion

JM Ashby
Written by JM Ashby

As far as adjustments in economic expectations go, this is another doozy.

The Congressional Budget Office (CBO) announced this morning and they expect the federal budget deficit will reach $1 trillion about two years earlier than they previously expected.

We already knew the deficit was approaching $1 trillion and even the Trump White House has projected that the deficit will hit $1 trillion by the end of the year, but over the long term the CBO projects something worse.

The CBO now expects the deficit will increase by an additional $800 billion over the next ten years on top of what they were already expecting. And, as hard as it may be to believe, things could be even worse than that.

From the Washington Post:

The United States was already expected to hit about $1 trillion in annual deficits next year, an unusually high number particularly given that deficits normally contract during sustained periods of economic growth.

But that shortfall will expand by $1.9 trillion in new spending due to a budget deal to avoid the spending cliff reached by congressional Democrats and President Trump, and an emergency spending package for the crisis at the U.S.-Mexico border. [...]

The expanding shortfall is driven largely by falling tax revenue, driven lower in part due to the 2017 Republican tax law signed by Trump that slashed rates for corporations and individual earners. In 2016, the CBO projected revenue would equal roughly 18 percent of America’s economy by 2018 and 2019, a number now down to 16.5 percent and projected to remain at roughly that level.

CBO also said higher trade barriers would shave about 0.3 percent of the nation’s Gross Domestic Product by 2020, warning it could hurt economic growth amid widespread fears of a recession. CBO also has projected an additional $400 billion in revenue through customs duties largely due to Trump’s trade war, although that number does not include the economic impact of decreased growth.

In other words, their projection would actually be $1.2 trillion higher, not $800 billion, if Trump's trade war ended. Revenue generated by Trump's stealth tax on Americans (tariffs) is making our fiscal situation look better than it really is.

We've already seen this reflected in current yearly data, with Trump's tariff's reducing the surging deficit by tens of billions of dollars, but to see it play out over the long term is astonishing.

The implications of this are so dire I almost don't know where to begin.

The idea of a $2 trillion deficit is almost too fantastical to believe, and yet Trump and GOP are trying as hard as they can to get us there. These projections from the CBO say current federal policies will expand the deficit by about $1.9 trillion over the next 10 years, but I don't think it will take that long. Their projections can't account for a possible economic downturn and the emergency spending that will be necessary as a result. They can't account for any other emergency that takes place between now and then, and we're piling up possible emergencies the longer we go without addressing climate change.

The budget deal reached by Trump and congressional Democrats will add $1.7 trillion to the deficit over 10 years, while the emergency supplemental package for the border will add $255 billion, according to the CBO, a nonpartisan agency.

By the end of next decade, America’s federal debt will approximately equal the entire nation’s economy or GDP.

  • Draxiar

    Here’s another beat stick that the Democrats can use on the Republicans. I hope they do.

  • muselet

    According to Rs, deficits and the debt are absolutely the most importantest problem facing Murca because Future Generations! Crushing Financial Burden! Immoral! and other equally fatuous soundbites.

    Until an R is in the White House.

    Then they revert to Richard Bruce “Dick” Cheney’s famous statement: “You know, Paul, Reagan proved that deficits don’t matter.”

    It’s almost as if the Rs don’t believe their own propaganda.

    –alopecia

    • Draxiar

      I think Tricky Dick Cheney said that because by the time they “matter” a Democrat in the White House will be the one to deal with them. So, from the Republican perspective they don’t matter because they don’t have to deal with the fallout.

      • muselet

        To be fair to Dick Cheney (a phrase you won’t catch me using very often), he was almost certainly saying that deficits don’t matter electorally: Ronald Reagan didn’t lose votes because of his wildly unbalanced budgets.

        But yes, it’s only when the Ds come in and try to clean up the Rs’ messes that The Party Of Fiscal Responsibility gets its collective knickers in a twist about deficits.

        –alopecia