’20 deficit expected to exceed $1 trillion

Imbalance seen on endless track

WASHINGTON — The U.S. government’s budget deficit is projected to reach $1.02 trillion in 2020, according to a report released Tuesday by the nonpartisan Congressional Budget Office, as the federal government continues to spend more than it collects in tax revenue.

The annual update from the budget office raises the red ink above $1 trillion for the first time since 2012, when former President Barack Obama capped four-consecutive years of $1 trillion-plus budget deficits.

Overall, the office projected that the federal government will spend $4.6 trillion in the fiscal year that ends Sept. 30 and collect $3.6 trillion in tax revenue.

Some of the costliest government programs are projected to experience expansions in the next decade. Spending for Medicare, which provides health care for mostly older Americans, will rise from $835 billion in 2020 to $1.7 trillion by 2030, while annual federal spending on Social Security will grow from roughly $1.1 trillion to $1.9 trillion over that span.

The budget office’s estimates assume that Congress will allow tax cuts for individuals passed in

Republicans’ 2017 tax law to expire in 2025. GOP lawmakers in Congress will at least try to extend most if not all of these provisions.

This year’s deficit would be an increase from 2019, when the government deficit grew to $984 billion. The deficit in 2016, Obama’s last full year in office, was $585 billion. The Congressional Budget Office now projects that the deficit will be at least $1 trillion each year in perpetuity unless policymakers make changes.

Obama’s deficits came as the U.S. economy recovered from the deep recession of 2007-2009. The return of trillion-dollar deficit now comes as the economy is humming on all cylinders, with the budget office predicting that the jobless rate nationwide will average below 4% through at least 2022. The growth rate is predicted to hit 2.2% this year.

“The U.S. economy is doing well, with low unemployment and rising wages that have drawn people off the sidelines and back into the labor force,” Phillip Swagel, the budge office’s director, said in a statement. “But our projections also suggest that over the long-term, changes in fiscal policy must be made to address the budget situation.”

The office also projected the economy would grow by 2.2% in 2020, which represents a healthy clip but falls short of the 3% target set by the Trump administration. The projections were contained in the budget office’s annual budget and economic outlook.

With rising annual deficits, the total debt held by the government also is projected to grow dramatically, from about $18 trillion in 2020 to $31 trillion in 2030, according to the budget office projections. The U.S. government must pay interest on this debt to keep borrowing money.

In 2019, bipartisan majorities in Congress approved new spending bills that added more than $500 billion to the deficit over the next decade. The most expensive new policies were the permanent repeal of taxes created under Obama’s Affordable Care Act, including one on expensive health plans.

These actions would have done more to drive up the deficit had they not been mitigated by lower-than-expected interest rates, which allow the government to borrow money more cheaply than the budget office had originally anticipated.

The projection also appears to cast doubt on recent statements by President Donald Trump and other administration officials that the 2017 Republican tax cut is creating enough revenue through new economic growth that it will offset all near-term losses. White House officials have defended the $1.5 trillion tax legislation, which slashed tax rates for businesses and many households.

Tax revenue has risen slowly since the tax cuts were passed, but many forecasters say the cuts led to a sizable drop-off in projected revenue collections. Combined with an increase in spending, the deficit has grown, forcing the Treasury Department to borrow more money to cover the balance.

Treasury Secretary Steven Mnuchin expressed confidence the tax cut would not add to the nation’s debt, saying: “We’ve tracked the numbers, and we’re right on track.”

Trump has told aides that he will look for big spending cuts in his second term, a position echoed by Mnuchin, who said government spending must be slowed down. Trump aides also have previewed a potential second round of tax cuts.

The Congressional Budget Office report shows that tax collections are weaker than they would be without the 2017 Republican tax law, which permanently locked in lower rates for many corporations while creating temporary reductions for households. Tax revenue remained roughly flat the first year the law was in effect, despite economic growth of nearly 3%. It rose slightly in 2019 but not enough to compensate for flatlining the year before.

Asked about Mnuchin’s remarks on Tuesday, Swagel pointed to the budget office’s April 2018 analysis finding the GOP tax law would increase the deficit by $1.9 trillion over 10 years. That number accounts for the impact of faster economic growth as a result of the tax law. Swagel served as a Treasury official in George W. Bush’s administration and worked at the American Enterprise Institute, a conservative think tank.

In January 2017, before the tax law, the budget office projected corporate tax revenue would represent 1.8% of gross domestic product. Now, they are expected to represent only 1.1% of GDP.

“This is an important warning light,” Marc Goldwein, a budget expert with the group, said of the Congressional Budget Office’s report. “We know deficits as a share of GDP have never been this high when the economy is this strong.”

Other economic experts played down the danger posed by the rising deficit. They noted the country is still extremely unlikely to default because of the supremacy of the U.S. dollar among international creditors, and that inflation — one of the potential hazards of high deficits — remains low by historical standards.

“There is simply no threat of inflation on the horizon,” said Robert Hockett, a professor at Cornell University who has advised Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., on economic policy matters.

Divided government isn’t helping the deficit picture as the Democratic-controlled House led the way in repealing $377 billion worth of the health law’s tax increases, including a so-called Cadillac tax on high-cost health plans. House Speaker Nancy Pelosi, D-Calif., was also a driving force in last summer’s budget accord.

The Congressional Budget Office report landed during an intensifying presidential campaign in which concerns about the deficit are not really an issue. Trump has promised to leave Social Security pensions and Medicare benefits off the table as his administration seeks ways to blunt the political impact of the deficit figures.

The administration’s budget is being released next month but is likely to be largely ignored, especially as election-year politics take over.