WASHINGTON, D.C. – An annual congressional report says the U.S. budget deficit is likely to burst through the symbolic $1 trillion barrier this year despite a healthy economy.
Tuesday's Congressional Budget Office report follows a burst of new spending last year and the repeal in December of several taxes used to help finance the Affordable Care Act. Those have combined to deepen the government's deficit spiral well on into the future, with trillion-dollar deficits likely for as far as the eye can see.
The annual CBO update of the government's economic and fiscal health estimates a $1 trillion deficit for the ongoing fiscal year, which would bring the red ink above $1 trillion for the first time since 2012, when former President Barack Obama capped four consecutive years of $1 trillion-plus budget deficits. The government, slated to spend $4.6 trillion this year, would have to borrow 22 cents of every dollar it spends.
Most economists say the most relevant way to look at the deficit is to measure it against the size of the economy, with deficits at 3 percent or so of gross domestic product seen as sustainable. The latest report shows deficits averaging 4.8 percent of GDP over the course of the coming decade.
“As a result of those deficits, federal debt would rise each year, reaching a percentage of the nation's output that is unprecedented in U.S. history," the CBO report says.
Obama's deficits came as the U.S. economy recovered from the deep recession of 2007-2009. The return of trillion-dollar deficit now comes as the economy is humming on all cylinders, with the CBO predicting that the jobless rate nationwide will average below 4 percent through at least 2022. The growth rate is predicted to hit average 2.2 percent this year.
“The economy's performance makes the large and growing deficit all the more noteworthy,” said CBO Director Phillip Swagel. “Changes in fiscal policy must be made to address the budget situation, because our debt is growing on an unsustainable path.”
The government reported a $984 billion deficit for the 2019 budget year. Cumulative deficits over the coming decade are expected to total $13 trillion — a total that would have gone higher save for CBO's belief that yields on Treasury notes will remain unusually low as the government refinances its $23 trillion debt.
The recent surge in the deficit has followed passage of the 2017 Trump tax bill, which has failed to pay for itself with additional economic growth and revenues as promised by administration figures like Treasury Secretary Steven Mnuchin. The surge in deficits also follows a final rewrite last summer of a failed 2011 budget deal to increase spending of both defense and domestic programs.
Divided government isn't helping the deficit picture as the Democratic-controlled House led the way in repealing $377 billion worth of “Obamacare" tax hikes, including a so-called Cadillac tax on high-cost health plans. House Speaker Nancy Pelosi, D-Calif., was also a driving force in last summer's budget accord, which is scored at adding $1.7 trillion to the deficit over the coming decade.
CBO holds a traditional view of economists that debt that's too high has a “crowding out” effect on private sector investment in the economy and can lead to higher interest rates and maybe even a European-style debt crisis. But interest rates have remained low despite CBO's alarms and more liberal economists hold a much more dovish view of the effects of higher deficits on the economy.
The CBO report landed amid an intensifying presidential campaign in which concerns about the deficit are not really an issue. President Donald Trump has promised to leave Social Security pensions and Medicare benefits off the table as his administration seeks ways to blunt the political impact of the eye-popping deficit figures.
The administration's budget is being released next month but is likely to be largely ignored, especially as election-year politics take over.