An annual congressional report released on Tuesday said the U.S. budget deficit is likely to burst through the symbolic $1 trillion barrier this year despite a strong economy.
This report comes as Congress authorized new spending last year, as well as the repeal of several taxes used to help finance the Affordable Care Act in December in combination with massive corporate tax cuts under the GOP tax plan enacted in 2017. The deficit has grown tremendously under President Donald Trump and Treasury Secretary Steve Mnuchin and will continue to grow in the future.
This would be the first time the national deficit reaches over $1 trillion since 2012. Economists say that the most effective way to look at the national deficit is to measure it against the size of the economy. Deficits at 3 percent or so of gross domestic product are seen as sustainable. The latest report, however, shows deficits averaging at 4.8 percent of GDP over the coming years.
“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.
The last national deficit came during President Barack Obama’s presidency after the recession of 2007 to 2009. However, the economy is very strong with a less than 4 percent unemployment rate nationwide.
“The economy’s performance makes the large and growing deficit all the more noteworthy,” said Congressional Budget Office Director Phillip Swagel. “Changes in fiscal policy must be made to address the budget situation, because our debt is growing on an unsustainable path.”
In 2019, the government reported a $984 billion deficit. The CBO believes that the deficit will leave a “crowding out” effect on the private sector and can lead to higher interest rates. However, until now, interest rates have remained consistent.
The CBO report comes at the same time as the intense presidential campaign. Although rarely mentioned, this can become a growing issue on the campaign trail. Trump has promised in the past to leave Social Security and Medicare benefits off the table in negotiations to address the growing deficit, he recently said he was open to making such cuts.