CBO: Federal deficit to hit $601B in 2019

CBO: Federal deficit to hit $601B in 2019
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Federal deficits are expected to rise for the first time in nearly a decade, driving up the federal debt to almost unprecedented levels, according to an analysis from the nonpartisan Congressional Budget Office (CBO). 

While the federal deficit is projected to drop in 2017 and 2018, the CBO projects it will rise to $601 billion in 2019 thanks to rising Social Security and Medicare costs. 

The projections come less than two months before the United States is expected to exceed the legal limit on how much debt the country can hold on March 16. The Trump administration and Congress will need to collaborate on a way to raise the debt ceiling, or the United States could trigger a global economic crisis by defaulting on its debt.

The CBO projects that the economy will grow at an average rate of 2.1 percent in the coming years, raising employment and wages.

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That will also raise revenue for the government through income taxes, but not enough to offset rising entitlement costs from an aging population, the CBO said. 

The projections could be a factor in decisions by the Trump administration and a Republican Congress to reform the tax code, repeal and replace ObamaCare and invest in infrastructure.

Tax cuts could lead to projections of even higher deficits by reducing government revenue, though President Trump and his economic team have talked of a reform that would offset rate cuts with the elimination of tax breaks on the wealthy. 

Trump Treasury Secretary-designate Steven Mnuchin has discussed a tax cut for the middle class and for businesses that would ensure the wealthy continue to pay the same amount of taxes. 

Conservatives worried about government spending are likely to point to the deficit projections to question costly spending on infrastructure that might bust the budget. Trump has discussed a plan that would rely on tax credits and tolls to incentivize private-sector investments in roads and bridges.

While the federal budget deficit increased in 2016 for the first time since 2009, it has generally been dropping since the height of the financial crisis. 

The 2016 federal deficit was $587 billion, and will drop to $559 billion in 2017 due to payment timings related to the start of the fiscal year. After sinking to $487 billion in 2018 because of payment timings, the deficit is projected to rise to $601 billion in 2019.

Though federal revenue is expected to rise from 17.8 percent to 18.4 percent of gross domestic product in the next 10 years, federal spending is projected to spike from nearly 20.3 percent to 23.4 percent, almost entirely due to Social Security and Medicaid.