Projections raised for budget deficit

Agency says will hit $1 trillion in ’20

WASHINGTON — The federal budget deficit is projected to grow faster than previously expected as spending and tax-cut policies force the United States to borrow more 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 fiscal 2019, which ends Sept. 30, the Congressional Budget Office said in updated forecasts released Wednesday. That gap will widen to $1 trillion in fiscal 2020, the budget office said.

The updated projections show deficits rising faster than the office had previously predicted. In May, the budget office said it expected a deficit of $896 billion for fiscal 2019 and $892 billion for fiscal 2020.

The deficit 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 fiscal 2019 deficit is projected to be 25% larger than it was in fiscal 2018, and the budget office predicts it will continue

to rise every year through fiscal 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 projections show.

The increasing levels of red ink stem in part from a steep drop in federal revenue after President Donald Trump’s 2017 tax cuts, which lowered individual and corporate tax rates, resulting in fewer tax dollars flowing to the Treasury Department. Tax revenue for fiscal 2018 and fiscal 2019 has fallen more than $430 billion short of what the budget office predicted in June 2017, before the tax legislation was approved that December.

The office also said the budget deal signed into law earlier this month, which took away the prospect of a government shutdown in October and the threat of deep automatic spending cuts, would boost deficits by $1.7 trillion over the coming decade. Increased spending on disaster relief and border security would add $255 billion. Downward revisions to the forecast for interest rates help the picture, trimming $1.4 trillion.

The ballooning shortfall defies a historic trend: Typically, the yearly budget deficit shrinks when unemployment is low. But it is increasing despite the longest economic expansion on record and the lowest jobless rate in 50 years.

The budget office projects that the economy will expand more slowly, falling from 2.3% this year to 1.8% on average in the next four years. The assumption reflects slower growth in consumer spending and government purchases, as well as the effect of trade policies on business investment.

It also projects the unemployment rate will remain close to its current level of 3.7% through the end of 2020 and then rise to 4.6% by the end of 2023.

“The recent budget deal was a budget buster, and now we have further proof. Both parties took an already unsustainable situation and made it much worse,” said Maya MacGuineas, president of the private Committee for a Responsible Federal Budget.

When asked about the report, White House adviser Kellyanne Conway pivoted to the president’s desire to fund the military and other programs.

“We’re always concerned about the deficit,” Conway said. “We also need to fund a lot of the projects and programs that are important to this country.”

TAX MUSINGS

Trump has shown little inclination to prioritize deficit reduction, and he 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 is estimated to add $100 billion to deficits over a decade. He has also talked about cutting payroll taxes, which could reduce revenue by $75 billion a year for every percentage-point reduction in rates.

“Payroll tax is something that we think about, and a lot of people would like to see that, and that very much affects the workers of our country,” Trump said Tuesday during an exchange with reporters at the White House.

Millions of Americans pay a payroll tax on their earnings, a 6.2% levy that is used to finance Social Security programs. The payroll tax was last cut in 2011 and 2012, to 4.2%, during President Barack Obama’s administration as a way to encourage more consumer spending during the most recent economic downturn. But the cut was allowed to reset back to 6.2% in 2013.

Trump backed away from both tax-reduction ideas in comments to reporters on Wednesday, though it is unclear whether the new deficit figures played any role in that reversal.

“I’m not looking at a tax cut now,” he said. “We don’t need it. We have a strong economy.”

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 that tax revenue rises; if they do not expire, then future deficit projections would be even larger.

Republican lawmakers on Capitol Hill say they would like to pursue efforts to shrink the deficit, but likely not until after Trump’s re-election campaign.

“We’ve got to fix that,” said John Thune of South Dakota, the No. 2 Republican in the Senate, on 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.”

“I hope in a second term, he is interested,” Thune said of Trump. “With his leadership, I think we could start dealing with that crisis. And it is a crisis.”

Reducing the costs of Social Security, Medicare and other contributors to the debt is “usually best done during divided government,” said Sen. John Barrasso, R-Wyo. “We’ve brought it up with President Trump, who has talked about it being a second-term project.”

Other lawmakers in both chambers said 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 to become an independent. “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.”

Congressional Democrats have walked a line on the deficit, criticizing Republicans for the tax law but providing the bulk of the votes to pass the most recent spending increases, including one that ended the threat of sequestration, the process of sweeping cuts across all government agencies and programs.

“It’s just not financially sustainable at all,” said Sen. Jon Tester, D-Mont. “Even though I hated sequestration with a passion, I don’t think that gives you the right to just go out and spend money and put the whole economy on a sugar high. And that’s going on right now.”

Many of the party’s leading candidates for president have proposed large increases in government spending, such as “Medicare for All,” that would need to be financed by tax increases or additional government borrowing. Candidates have proposed rolling back the Trump administration’s tax cuts and imposing new taxes on the wealthy and high-earners, while some in the party have pushed their leaders to effectively mimic Trump’s approach to the deficit — spending more without simultaneously raising taxes.