Republican tax cuts to fuel historic U.S. deficits: CBO

Apr 12, 2018, 00:42
Republican tax cuts to fuel historic U.S. deficits: CBO

The U.S. budget deficit will balloon over the next few years mainly because of deep tax cuts approved in December by Republicans in the U.S. Congress and President Donald Trump, the nonpartisan Congressional Budget Office said on Monday.

The new CBO projection is the first since President Donald Trump signed a tax cut that is expected to cost the government almost $1.9 trillion over 11 years, then signed legislation to significantly boost military and domestic spending over the next two years.

Republicans controlling Washington have largely lost interest in taking on the deficit, an issue that has fallen in prominence in recent years. The deficit will be US$804 billion for the current financial year, which ends on September 30, a big rise from the US665 billion deficit for fiscal 2017 and US$242 billion more than the CBO projected last (northern) summer.

However, the non-partisan CBO said the deficit - the difference between what the government spends and what it receives through tax receipts - is expected to rise to $804bn in 2018 from $665bn in the previous year.

Trump called the $1.3 trillion spending measure last month a "ridiculous situation" and said he only signed it to protect defense spending.

In 2011, Congress struck a much-criticized deal to force lawmakers to reduce deficits under threat of automatic cuts if spending caps were violated.

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The CBO predicted a 3.3% advance this year for the US economy, the world's largest, but a drop to 2.4% in 2019.

At 11 years, the report covers a slightly longer time period than the usual 10-year projections, but even accounting for just the first decade, the figure remains around $1.9 trillion.

But the CBO suggests the administration's promise that the tax cuts would pay for themselves seems out of reach. "Most of this growth is driven by consumer spending and business investment, but federal spending also contributes a significant amount this year", Hall said.

To assuage conservative anger over the spending bill, House Republicans plan to hold a vote this week on a balanced budget amendment to the Constitution.

"The CBO's latest report exposes the scam behind the rosy rhetoric from Republicans that their tax bill would pay for itself", Schumer said in a statement Monday. While the benefits of tax reform should not be overlooked, including a projected high short-term GDP growth and low unemployment, the deficit and debt forecasts are daunting and need to be addressed.

"It's all hand-waving and conjecture: There's no grounding in valid economic principles that this is a debt crisis", said Stephanie Kelton, a left-leaning economics and public policy professor at Stony Brook University and a former economic adviser to Sen.