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CBO projects grim budget outlook under Trump
A new report from the Congressional Budget Office (CBO) projects a grim fiscal outlook for the United States, which is seeing rising red ink under President Trump.
In 30 years, the U.S. debt burden is projected to double, eclipsing even the debt carried by the United States during World War II.
Payments the U.S. government makes to China and others holding U.S. debt would surpass projected Social Security spending in 2048, the report found. Interest payments will also exceed discretionary spending, the amount that Congress approves for defense and nondefense spending each year, which is projected to hit 5.4 percent of gross domestic (GDP) product by 2048.
Most of the rising debt is related to an aging population and rising entitlement spending, problems that were bedeviling the United States well before Trump's election.
At the same time, the tax-cut law signed by Trump and passed by the GOP-controlled Congress is adding to the short-term debt by reducing government revenue. Increased spending agreed to by both parties is also pushing up deficits.
The CBO reports that the GOP tax law will keep revenues flat until a handful of its provisions expire in 2026 - assuming they are not extended. If those tax cuts on individual income tax are extended and the current spending path is extended, as is widely expected, the debt situation would be even worse.
An analysis from the Committee for a Responsible Federal Budget projected that keeping the current tax and spending policies from expiring would mean the national debt would reach about 200 percent of GDP in 2048, and annual deficits would exceed 13 percent of GDP.
The CBO warned that the higher debt levels also increase the chances of a fiscal crisis while reducing the government's ability to respond to unforeseen events.
The main drivers of long-term debt are increased spending on Social Security, health programs such as Medicare and Medicaid and increasing interest payments.
"Most of the spending growth for Social Security and Medicare result from the aging of the population," said CBO Director Keith Hall.
"Revenues, in contrast, are projected to be roughly flat over the next few years in relation to GDP," he added.
The rising red ink has been a worry for congressional Republicans, who sought earlier this year to claw back spending already appropriated through a rarely used rescission package.
That bill, which would have clawed back only $15 billion in spending, passed the House but died in the Senate.
Trump and his allies in Congress have argued that an expanding economy is the key to drive down debt, but the growth necessary to do so would have to be historic.
The CBO projected that growth would spike briefly as a result of the tax and spending policies but quickly fall back to a long-term average of just 1.9 percent.
To keep the debt burden at its current level, Congress would have to cut spending or increase revenues by a combined 1.9 percent of GDP every year. That amounts to a 10 percent cut in spending and an 11 percent increase in tax revenue, or some combination of the two.
In 2019 alone, that would amount to a tax increase that would add $1,300 in taxes for people in the middle of the tax distribution, or, alternatively, a Social Security cut that would reduce payments by $1,800 for people in the middle of the lifetime earnings distribution.
Senate Minority Leader Charles Schumer (D-N.Y.) pounced on the report Tuesday.
"Today's report is another reminder about the true costs of handing out massive tax breaks to billionaires and large corporations," he said.
"The Republican strategy is clear: increase the deficit on behalf of special interests, then use that as an excuse to slash benefits that hardworking Americans have earned," he added.
Experts urged Washington to pay attention to the report's dire predictions.
"We knew already that federal debt was heading towards unsustainable levels," said Shai Akabas, director of economic policy at the Bipartisan Policy Center. "But the new projections give us a picture of just how bad the problem will be in 30 years, when our children and grandchildren will have to foot the bill."
"CBO's report is filled with sobering projections that should be an urgent wakeup call for the Administration and Congress," said Michael Peterson, chairman and CEO of the Peter G. Peterson Foundation, a fiscal watch group.
"This new report should motivate policymakers to pay for their priorities and act on the many available solutions to secure our collective future," he added.
Markets, though, have been slow to react to the report.
"We've been living through this bizarre world where there's been so much artificial demand in the debt market that the market hasn't really been able to react," said Michael Cembalest, chairman of market and investment strategy for J.P. Morgan Asset Management.
Once the Federal Reserve and other central banks finish winding down their eased monetary policies, however, that could change.
"I'm worried about the U.S. fiscal situation, but I think it's premature to say that the long-term rates will result in much-higher bond yields," Cembalest said.
Updated at 3:07 p.m.