Federal deficit rises faster than expected
With Trump’s tax cut politicies, it’s projected to hit $960B this year and $1T in fiscal 2020
WASHINGTON — The federal budget deficit is growing faster than expected, as President Donald Trump’s spending and tax cut policies force the United States to borrow increasing sums of money.
The deficit — the gap between what the government takes in through taxes and other sources of revenue and what it spends — will reach $960 billion for the 2019 fiscal year, which ends Sept. 30. That gap will widen to $1 trillion for the 2020 fiscal year, the Congressional Budget Office said in updated forecasts released Wednesday.
The updated projections show deficits rising — and damage from Trump’s tariffs mounting — faster than the office had predicted. In May, the budget office said it expected a deficit of $896 billion for 2019 and $892 billion for 2020.
That damage would be even higher if not for lower-than-expected interest rates, which are reducing the amount of money the government has to pay to its borrowers. Still, the 2019 deficit is projected to be 25 percent larger than it was in 2018, and the budget office predicts it will continue to rise every year through 2023.
By 2029, the national debt will reach its highest level as a share of the economy since the immediate aftermath of World War II.
The increasing levels of red ink stem from a steep falloff in federal revenue after Trump’s 2017 tax cuts, which lowered individual and corporate tax rates, resulting in far fewer tax dollars flowing to the Treasury Department.
Tax revenues for 2018 and 2019 have fallen more than $430 billion short of what the budget office predicted they would be in June 2017, before the tax law was approved that December.
The need to borrow more money has been aggravated by several bipartisan budget agreements to raise military and nondefense domestic discretionary spending.
And it could increase if the trade war further chills business investment and consumer
spending, resulting in slower economic growth and fewer tax dollars flowing to the Treasury Department.
“One likely reason for the lower-than-expected receipts is that some parts of the economy have been weaker than CBO projected in April 2018,” the budget office said. “A number of developments other than the tax act appear to have contributed to that weakness, including increases in tariffs, greater uncertainty about trade policy and slower economic growth in the rest of the world.”
The ballooning defies a historic trend: Typically, the budget deficit shrinks when unemployment is low. But it’s increasing despite the longest economic expansion on record and the lowest jobless rate in 50 years.
It also underscores the degree to which Republicans in Washington — who championed fiscal responsibility under Democratic President Barack Obama — largely have abandoned that goal.
While lawmakers continue to talk about the need to reduce the deficit, it’s no longer the kind of animating issue that ushered the tea party into power.
Trump has shown little inclination to prioritize deficit reduction, and instead has considered policies that would add to the debt.
The president has mused in recent days about reducing the taxes that investors pay on capital gains, a move that’s estimated to add $100 billion to deficits over the next decade. He also has talked about cutting payroll taxes, which could reduce revenues by $75 billion a year for every percentage point cut in payroll tax rates.
Trump backed away from both ideas in comments to reporters Wednesday, though it’s unclear if the new deficit figures played any role in that reversal.
The president also wants to make permanent many of the temporary individual tax cuts contained in the 2017 law, which are scheduled to expire in 2025. The budget office forecast assumes those cuts expire and tax revenues rise; if they do not, future deficit projections would be even larger.
Trump’s indifference to deficits has shattered his campaign promise not only to balance the budget, but also to pay off the entire national debt. And it has left his fellow Republicans, who pushed through deficit-reduction measures under Obama when the economy was still fragile, in a bind.
Congressional Republicans largely have gone along with Trump’s moves to add more debt, even as they insist they’ll return to shrinking the deficit if Trump wins a second term in office.
“We’ve got to fix that,” Sen. John Thune, R-S.D., the No. 2 Republican in the Senate, said of the projected growth in so-called mandatory federal spending. “It’s going to take presidential leadership to do that, and it’s going to take courage by the Congress to make some hard votes. We can’t keep kicking the can down the road.”
Other lawmakers in both chambers said that Congress had abandoned all appearance of caring about the national deficit.
“I don’t know, maybe they should be honest with the American people and say that they don’t care about reducing spending,” said Rep. Justin Amash of Michigan, a fiscal hawk who recently broke ties with the Republican Party. “There’s no incentive within Congress to keep the debt down. That’s just not something they’re interested in. They believe they can keep spending forever. They never feel they’re going to be held accountable for it.”