The Congressional Budget Office (CBO) updated their projections on Monday and revealed a troubling prediction. According to the update released on Monday, this year’s federal budget deficit will rise to $804 billion, which puts the deficit on track to nearly hit $1 trillion around 2019.
The projection is largely due to the GOP’s tax reform and the bipartisan $1.3 trillion spending package that was approved last month.
The expected rise to $804 billion this year would mean a $139 billion increase during 2017. The total deficit would represent 4 percent of U.S. gross domestic product (GDP).
By 2019, the deficit would rise to $981. The CBO’s projections foresee a peak at 5.4 percent of GDP in 2022.
Higher deficits could result in overwhelming debt interest payments, drops in capital stock and productivity, decreased efficiency from fiscal policy, and higher chances for a fiscal crisis.
“Congress has got some tough decisions to make about how to deal with this problem,” CBO Director Keith Hall said in a statement.
Short-run effects of fiscal policy are expected to provide a boost to the economy. The CBO projected that real GDP will rise to 3.3 percent in 2018 before dropping below 2017 levels (to 2.4 percent) the next year.
In a similar trend, unemployment is projected to dip to 3.8 percent this year and 3.3 percent next year before rising back to the recent average of 4.8 percent.
Meanwhile, real GDP growth throughout the entirety of the decade is expected to remain around a moderate 1.9 percent.
The CBO attributed much of the increased GDP growth to the GOP tax plan and the bipartisan spending bill. The 2018 boost was attributed to economic data that exceeded expectations.
According to the report, “the largest effects on GDP over the decade stem from the tax act.” The reform will increase the overall economy by 0.7 percent by the end of the 10 years. It will also add 1.1 million jobs.
The CBO also found that the tax reform would cost more than originally estimated between 2018 and 2028.
While some Republicans continue to argue that the tax cuts in the bill would eventually pay for themselves, the opposition says otherwise.
“The CBO’s latest report exposes the scam behind the rosy rhetoric from Republicans that their tax bill would pay for itself,” Senate Minority Leader Charles Schumer (D-N.Y.) said in a statement Monday.
The budget organization forecasted that net interest payments on the debt would exceed both defense and nondefense spending by 2025.
“Now, during a time of low unemployment and economic expansion, we should be taking reasonable steps to put our debt on a sustainable path — but instead we are piling up trillions of bills that will harm the next generation’s economic prospects and prosperity,” said Michael Peterson, president and CEO of the Peter G. Peterson Foundation.
House Minority Leader Nancy Pelosi (D-California) argued that Republicans were negatively affecting the debt through tax policies that favor the rich and then blaming entitlement programs.
“The American people cannot afford Republicans’ fiscal hypocrisy and their relentless efforts to enrich the special interests on the backs of working families,” she said.
H/T: The Hill