US budget deficit set to top $1tn as Trump’s tax cuts and spending force rise in borrowing
Donald Trump’s tax cuts and spending policies are driving faster-than-expected growth in the US budget deficit, in sharp contrast to the fiscal responsibility he preached on the campaign trail.
The deficit - the debt-funded gap between what the government takes in through taxes and other sources of revenue, and what it spends - will reach $960bn (£790bn) for the 2019 fiscal year, which ends on 30 September.
That gap will then widen to $1tn for the 2020 fiscal year, the US Congressional Budget Office said in updated forecasts released on Wednesday.
The updated projections show deficits rising - and damage from Mr Trump’s tariffs mounting - faster than the office had previously predicted.
In May, the budget office said it expects a deficit of $896bn for 2019 and $892bn for 2020.
The office predicts the deficit will continue to rise every year through 2023, boosting the national debt so that by 2029 the debt will reach its highest level as a share of the economy since the immediate aftermath of World War II.
The increasing levels of red ink stem from a steep falloff in federal revenue after Mr Trump’s 2017 tax cuts, which lowered individual and corporate tax rates, resulting in far fewer tax dollars flowing to the US treasury department.
Tax revenues for 2018 and 2019 have fallen more than $430bn short of what the budget office predicted they will be in June 2017, before the tax law was approved that December.
The ballooning defies a historic trend. Typically, the 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.
It also underscores the degree to which Republicans in Washington - who championed fiscal responsibility under Barack Obama, a Democrat - have largely abandoned that goal.
While lawmakers continue to talk about the need to reduce the deficit, it is no longer the kind of animating issue that ushered the Tea Party into power.
Mr Trump has shown little inclination to prioritise deficit reduction and has instead considered policies that would add to borrowing.
The president has mused in recent days about reducing the taxes that investors pay on capital gains, a move that is estimated to add $100bn to deficits over the next decade.
He has also talked about cutting payroll taxes, which could reduce revenues by $75bn a year for every percentage point cut in payroll tax rates.
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Mr Trump backed away from both ideas in comments to reporters on Wednesday, though it is unclear if the new deficit figures played any role in that reversal.
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 tax revenues rise; if they do not, future deficit projections would be even larger.
Mr Trump’s indifference to deficits has shattered his campaign promise not only to balance the budget, but also to pay off the entire national debt.
And it has left his fellow Republicans, who pushed through deficit-reduction measures under Mr Obama when the economy was still fragile, in a bind.
Congressional Republicans have largely gone along with Mr Trump’s moves to add more debt, even as they insist they will return to shrinking the deficit if he wins a second term in office.
Republicans do not believe Mr Trump is likely to push for cuts to a pair of popular retirement programmes - and risk exposing himself to attacks in a re-election campaign - before a second term.
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But they acknowledged that efforts to curb the projected growth in so-called mandatory federal spending were warranted.
“We’ve got to fix that,” said Senator John Thune, the number two Republican in the Senate.
“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.”
Other lawmakers in both chambers said that 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 Justin Amash of Michigan, a fiscal hawk who recently broke ties with the Republican Party.
“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.”
New York Times
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