U.S. National Debt Will Rise to 98% of GDP by 2030, CBO Projects - WSJ

[Adam]

Sustained federal budget deficits and debt will hit the highest levels since World War II over the next decade, the Congressional Budget Office projected on Tuesday, following multiple rounds of tax cuts and continued increases in federal spending.

The government will spend $1 trillion more than it collects in 2020 and deficits will exceed that amount every year for the foreseeable future. As a share of gross domestic product, the deficit will be at least 4.3% every year through 2030. That would be the longest stretch of budget deficits exceeding 4% of GDP over the past century, according to CBO.

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Debt held by the public will be 81% of GDP this year and is projected to reach 98% by 2030. That stems from the combination of tax cuts and projected increases in spending—particularly on safety-net programs such as Medicare and Social Security.

“Not since World War II has the country seen deficits during times of low unemployment that are as large as those that we project,” said CBO Director Phillip Swagel.

CBO’s projections assume that Congress will allow current spending and tax law to occur without any changes. Deficits and debt would be larger than projected if Congress extends individual tax cuts beyond their scheduled expiration at the end of 2025.

During his 2016 campaign, President Trump talked about paying off the federal debt within eight years. Reality has moved in the opposite direction.

In 2017, Congress enacted tax cuts championed by the president, which are projected to increase budget deficits by more than $1 trillion over a decade. Administration officials, including Treasury Secretary Steven Mnuchin, have argued that the tax cuts will pay for themselves.

But nonpartisan estimates have contested that claim, and CBO said Tuesday that it had lowered its projected revenue from the 2017 law by $110 billion to incorporate Treasury regulations that eased some international tax provisions and businesses’ responses to the law.

The Trump administration has proposed some spending cuts, but his deals with Congress have gone the other way, with Republicans and Democrats agreeing to increase spending on domestic programs and national defense.

For years, lawmakers and budget experts warned that budget deficits were unsustainable because federal borrowing could crowd out private borrowing, leading to interest-rate increases. But that hasn’t happened, and interest rates have remained persistently low.

Those low rates have limited the government’s cost of borrowing. Since CBO’s last budget forecast in August 2019, projected interest costs have declined by $441 billion over a decade, reflecting rates that are 0.3 percentage point below the previous estimate. But loss of revenue from tax cuts enacted in December 2019 exceeded those savings, and CBO now projects budget deficits to be 1.3% larger than it did in August.

CBO projects 2.2% economic growth in 2020 and 1.9% in 2021, falling to 1.7% after that, and the forecast calls for the unemployment rate to begin rising in 2022 but to remain below historical averages. The jobless rate was 3.5% in December.

The agency, a nonpartisan arm of Congress, projects that consumer spending will remain strong and that business investment will rebound. ~ By Richard Rubin, The Wall Street Journal
Jan. 28, 2020 [https://www.wsj.com/articles/u-s-national-debt-will-rise-to-98-of-gdp-by-2030-cbo-projects-11580238089?]