Trump tax cuts carry a big price tag, Budget Office says

Los Angeles Times

WASHINGTON — The tax cuts championed by President Donald Trump are helping push the nation toward an unprecedented level of debt, heightening the risk of another financial crisis, according to the nonpartisan Congressional Budget Office.

The budget office’s annual look at the government’s long-term financial outlook paints a grim picture, projecting soaring deficits in the coming years, with debt ultimately peaking at more than 152 percent of the nation’s gross domestic product. “The prospect of large and growing debt poses substantial risks for the nation and presents policy makers with significant challenges,” said Keith Hall, CBO director.

The federal debt currently stands at about $15 trillion, or 78 percent of the size of U.S. economy. If current trends continue, it will roughly equal the size of the economy within a decade, the budget office said. The last time the debt burden hit that level was just after World War II.

The biggest problem in the coming decade stems from last year’s tax cut. It is estimated to increase the deficit by more than $2.3 trillion over the decade.

And that’s under an optimistic scenario. Under the tax law, individual income tax rates are slated to increase sharply at the end of the decade, while corporate taxes remain low. If Congress allows that individual tax increase to take effect, the tax cut’s long-term impact on the debt will begin to fade after the next 10 years.

But if Congress balks at that big tax increase — many members already have said they want to make the individual cuts permanent — the red ink would be even worse than projected, CBO said.

The budget office did not offer a projection of the more pessimistic scenario, but the bipartisan Committee for a Responsible Federal Budget crunched the numbers and found that if the individual cuts were kept in place, federal debt would be twice the size of the nation’s economy, and annual deficits would exceed 13 percent of the GDP over the next 30 years.

The impact of the tax cut comes on top of a pre-existing problem — the spiraling price of providing subsidized health care and Social Security for the huge baby boom generation as it moves into retirement, the budget office said.

Most of the rest of government spending is projected to decline, relative to the size of the economy, the report said. The one big exception is interest payments, which will rise as the debt increases.