WASHINGTON (Reuters) - The massive tax cuts signed into law in December, which Republicans said would pay for themselves, will balloon the U.S. deficit in years ahead, the Congressional Budget Office said on Monday, possibly hobbling President Donald Trump’s future agenda.
The deficit - the amount that Washington’s spending exceeds its revenues - will expand to $804 billion in fiscal 2018, which ends on Sept. 30, up from $665 billion in fiscal 2017, CBO said.
The national debt is on track to approach 100 percent of gross domestic product (GDP) by 2028, said the nonpartisan CBO, which analyses legislation for Congress.
“That amount is far greater than the debt in any year since just after World War II,” CBO said, adding that the debt is now about 77 percent of GDP, a measure of the size of the economy. The Republican tax legislation, passed by Congress without Democratic support, along with a recent bipartisan $1.3 trillion spending package, are expected to drive economic growth faster than initially expected, CBO said.
Real GDP will grow by 3.3 percent in 2018; 2.4 percent in 2019; and 1.8 percent in 2020, it said.
But those growth rates will not offset the deficits, which will “increase rapidly this year and over the next few years,” then stabilize, resulting in a projected cumulative deficit of $11.7 trillion for 2018-2027, CBO forecast.
The analysis “confirms that major damage was done” by the new tax law and the spending bill, said Michael Peterson, head of the nonpartisan Peter G. Peterson Foundation.
“This high and rising debt matters because it harms our economy,” said Peterson, whose group backs fiscal conservatism.
“During a time of low unemployment and economic expansion, we should be taking reasonable steps to put our debt on a sustainable path – but instead we are piling up trillions of bills,” he said.
The CBO’s annual report on the U.S. budget and economy typically comes out in January but was delayed this year to allow it to assess effects of the tax overhaul and spending bill. The forecast does not take into account any economic impact of the trade dispute between the United States and China.
In the near term, a rosier-than-expected economic outlook for individuals offered by the CBO could boost the Republican economic message as Trump’s party seeks to retain control of Congress in the November midterm elections.
All 435 seats in the U.S. House of Representatives and about a third of the 100-member Senate’s seats are being contested.
But, as deficits, inflation and interest rates rise, GDP growth will slow from 2020 to 2026, the CBO said. The expiration of lower individual tax rates at the end of 2025 will add to slowed economic growth then, the CBO added.
House Republicans have said they will take up a measure to balance the budget, now that lawmakers have returned from a two-week recess. But such a measure has little chance of passing and the effort will largely be about political messaging.
In the coming months, Trump and fellow Republicans will need to find ways to pay for other parts of their political agenda, including a proposed infrastructure package and a wall that Trump wants to construct along the U.S.-Mexican border that could cost as much as $70 billion.
Trump called the $1.3 trillion spending measure last month a “ridiculous situation” and said he only signed it to protect defence spending.
Senate Democratic Leader Chuck Schumer said the lower revenues and higher deficits resulting from the tax overhaul will prompt Republicans to call for cuts to social safety net programs such as the Social Security retirement programme and the Medicare health insurance programme for the elderly.
“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.
Reporting by Amanda Becker; editing by Kevin Drawbaugh, Will Dunham and Tom Brown